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ECB Leaves Rates Unchanged
By Kitco NewsWednesday April 15, 2014 7:45 AM
(Kitco News) - The European Central Bank (ECB), as expected, left interest rates unchanged Wednesday.
Following its monetary policy meeting, the main refinancing operation remains at 0.05%, its marginal lending facility rate stands at 0.30% and its deposit facility remains at negative 0.20%.
Analysts and economists will now be anxious to hear what ECB President Mario Draghi has to say about the central bank’s €60 billion monthly asset purchase program and the state of the European economy. Economists have noted that the ECB’s quantitative easing (QE) program has gotten off to a positive start in its first month.
However, some economists have anticipated that a positive economic outlook from Draghi during his press conference could lead markets to anticipate the purchase program won’t be extended past September 2016. This could lead to a boost in the euro against the U.S. dollar, which analysts have noted would be positive for the gold market.
Dovish comments from Draghi, stressing that risks to the European economy remain on the downside, could lead to further debasement of the single current, which would be negative for gold.
“ECB President Mario Draghi will have to continue to balance the positive message of cyclical improvement evident from the economic data with the communication that the return of inflation in the ECB staff projections to below, but close to, 2% is conditional upon the full implementation of the ECB’s [purchase program] to keep premature taper expectations contained,” said economists at Nomura in a report released ahead of the meeting. “As part of this we also expect the Introductory Statement to continue to note that risks surrounding the economic outlook remain on the downside though have diminished.”
Economists are also expecting Draghi to address recent concerns about supply issues and whether or not the central bank will have enough government bonds to purchase on a monthly basis.
Tuesday, Moody’s released a report saying that the ECB could end up running out of government bonds before the purchase program’s end date. They note that since the central bank started buying EU members sovereign debt, yields have fallen below the negative 0.2% threshold.
"Even if the pace of decline in bond yields slows in the remainder of the year, the ECB could run out of eligible bonds from some governments by the turn of the year," said Marie Diron, senior vice president and author of the report.
The rating agency’s press release noted that “under the QE program's terms, the ECB will only buy government bonds with an outstanding maturity of between two and 30 years and with yields no lower than the central bank's -0.2% deposit rate. In addition, the ECB won't buy more than 25% of a given issue or 33% of bonds from a given issuer.”
By Neils Christensen of Kitco News; nchristensen@kitco.com
Follow Neils Christensen @neils_C
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