Market News

The European Central Bank's (ECB) governing council said on Thursday it would hold the eurozone's interest rates unchanged and keep its roster of unconventional monetary policy tools at the current calibrations.

The ECB held the headline interest rate at 0% and kept its deposit rate for banks at -0.5%. The pandemic emergency purchase programme (PEPP) was maintained at €1.85tn (£1.60tn, $2.26tn) and the asset purchase programme was held at €20bn.

Economists said ahead of the meeting that no changes were expected, despite rising inflation pressures in the eurozone. Inflation rose sharply to 2% in May, meeting the ECB's target but raising fears that prices rises could soon run above acceptable levels.

Rising inflation has led to speculation about when and how the ECB will begin to slow asset purchases under PEPP, which was set up last year to keep finance flowing easily and cheaply to the real economy as the COVID-19 pandemic struck. 

The governing council said on Thursday it would continue PEPP until "at least March 2022 and, in any case, until it judges that the coronavirus crisis phase is over." The council said it would continue to buy up assets at "a significantly higher pace than during the first months of the year."

Economists expect the ECB to begin to slow PEPP purchases — a process known as 'tapering' in the market — later this year, before winding the programme down early in 2022. Silvia Ardagna and Francois Cabau, economists at Barclays, said in a note last week that the ECB was unlikely to slow PEPP for now "given still highly uncertain economic outlook and no meaningful change to a subdued medium-term inflation outlook." 

"In our view, even a slight reduction of the pace of purchases could be interpreted by the market as tapering and jeopardise the result of the recent more dovish communication on easing financing conditions," the pair wrote.