The European Central Bank held its interest rates unchanged for the fourth month in a row on Thursday, assessing that the nascent recovery in the euro area remains on track.
As expected, the ECB left its central “refi” or refinancing rate unchanged at its current historical low of 0.25 percent at its monthly policy meeting.
The central bank also held its other two key rates — the marginal lending rate and the deposit rate — unchanged at 0.75 percent and zero percent respectively.
The ECB last pared back eurozone borrowing costs in November.
Few ECB watchers had been betting on a further cut this month, even if there had been some outside speculation that the central bank could ease monetary conditions given the very low level of inflation.
However, most economic data released recently suggest that the spectre of deflation — the destructive spiral of falling prices in which consumers put off purchases, thus destroying salaries, jobs and investment — is being kept at bay.
In addition, there seems to be little indication that the green shoots of recovery are in danger of being stamped out, not even by the crisis in Ukraine, ECB chief Mario Draghi told a news conference.
The ECB, in its latest economic projections, upgraded, albeit fractionally, its forecast for growth forecast for this year to 1.2 percent and predicted that recovery would gather momentum to 1.5 percent in 2015 and 1.8 percent in 2016.
“A gradual recovery in domestic and external demand is expected to be the driving factor behind the projected increase in activity,” Draghi said.
And while it was too early to assess the geopolitical risks, “when we look at Ukraine, if we look at that from a purely technocratic point of view, we have to say that the interconnections are not so important as to suggest a strong contagion from that region,” Draghi said.
– Interest rates to remain low for now –
The ECB had not drawn up a range of different scenarios to predict what the wider impact could be if the crisis continues for a long time, Draghi said.
“We poor central bankers don’t have enough information to asses the impact at such an early stage in the crisis,” he said.
Draghi insisted, however, that eurozone interest rates would remain very low even if the recovery continues apace.
“Our monetary policy stance will stay in place even after improvement of economic data,” he said.
The eurozone “is an island of stability (even if) it has yet to come back to being one of job creation and growth,” he said.
ECB watchers said that while Draghi is clearly keeping all his options open, further rate cuts were unlikely to be on the cards in the immediate future.
“Amid a gradually firming recovery, the ECB sees no need to act,” said Berenberg Bank economist Christian Schulz.
– Keeping door open –
IHS Global Insight economist Howard Archer saw “a very real possibility that the ECB could yet take further stimulative action –- especially if consumer price inflation remains around the current level for a protracted period or dips further.
“The ECB is certainly keeping the door wide open to further stimulative action,” Archer said.
However, “we now very much doubt that the ECB will take interest rates any lower. We think if the ECB does take any further action, it will be most likely be to add liquidity,” the expert said.
Carsten Brzeski at ING DiBa said that “looking at the economic indicators released since early February could only lead to ticking all the boxes with the name ‘no change’ on it.”
And the long-awaited ECB staff projections “also made it harder to act,” he said.
“New action is still possible but only if tensions in the money market increase and/or the inflation outlook worsens. Until then, the ECB will lean back and do nothing, enjoying what Draghi called the island of stability,” Brzeski said.