FRANKFURT, Jan 24 (Reuters) - The European Central Bank kept its policy unchanged as expected on Thursday, maintaining its guidance for an interest rate hike after the summer, despite a sharp slowdown in economic growth.
With inflation on the rise and euro zone employment at a record high, the ECB ended a 2.6 trillion asset purchase stimulus scheme last month, satisfied that it had done its job.
But growth is now past its peak and headwinds appear to be increasing, suggesting the ECB will struggle to remove stimulus further and may even be pressed to delay its next step in normalising policy.
But it can afford to take its time in weighing its options, economists said ahead of Thursday’s decision, adding that any dovish policy shift just weeks after ending its bond-buying would appear contradictory.
“The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary,” the ECB said in a statement, reaffirming its interest rate guidance.
The policy stance is now out of sync with market expectations, which put the first hike in mid-2020, but policymakers have dismissed the significance of the disconnect, arguing that economic conditions would impact the eventual move and market prices simply reflect the changing outlook.
Attention now turns to ECB President Mario Draghi’s 1330 GMT news conference, at which he is likely to acknowledge the economy’s weakening momentum and may downgrade the bank’s growth risk assessment to say risks are now ‘tilted to the downside.’
Investors will also look to see if Draghi provides any further detail on fresh long-term loans to banks, which the ECB is expected to offer later this year.
With Thursday’s decision, the ECB’s rate on bank overnight deposits, which is currently its primary interest rate tool, remains at -0.40 percent.
The main refinancing rate, which determines the cost of credit in the economy, remained unchanged at 0.00 percent while the rate on the marginal lending facility — the emergency overnight borrowing rate for banks — remains at 0.25 percent. (Reporting by Balazs Koranyi; Editing by Catherine Evans)