LONDON (Reuters) -The European Central Bank left interest rates steady at 2%, as expected on Thursday, taking a break after a year of policy easing to wait for clarity over Europe’s future trade relations with the United States.
The euro traded at $1.1756 , little changed from where it stood before the ECB statement. Euro area bond yields and European shares remained higher on the day.
Germany’s rate sensitive two-year Schatz yield was last up 6 basis points on the day at 1.85%, little changed from levels seen before the decision.
Europe’s broad STOXX 600 index was up 0.4% on the day.
Money market price in a more-than 80% chance of another 25-bp rate cut by year-end.
COMMENTS:
ARNE PETIMEZAS, DIRECTOR RESEARCH, AFS GROUP, AMSTERDAM:
“Lagarde and the ECB still lack the confidence to offer any meaningful guidance or place trust in their forecasts. Otherwise, they would fine-tune policy – perhaps even take out an insurance cut in the autumn. They’re happy playing the reactive game and wait for data and events to tell them what to do next.”
NICK REES, HEAD OF MACRO RESEACH, MONEX EUROPE, LONDON:
“I wasn’t expecting anything much from the statement and at first glance there doesn’t seem to be much in it.
The big question for us is: do they realistically think they need to cut rates again given that euro/dollar isn’t appreciating at pace, and the indications are that the EU has a deal with the U.S., and that takes two of the risks to inflation off the table? Now to see how confident (ECB President Christine) Lagarde sounds about it.”
RICHARD CARTER, HEAD OF FIXED INTEREST RESEARCH, QUILTER CHEVIOT, LONDON:
“If the dollar continues to be as weak as it has this year and inflation remains in check, pressure for a rate cut in September could ramp up once again.
“With the ECB well ahead of other central banks in that rate-cutting cycle, it has diverged significantly from other central banks.
“Uncertainty remains the theme of the day for the ECB. But as soon as those clouds lift, we shouldn’t be surprised to see it get back on the pedal and start cutting rates once again.”
MARCHEL ALEXANDROVICH, ECONOMIST, SALTMARSH ECONOMICS, LONDON:
“At 2%, rates remain squarely to the middle of the ECB’s 1.5% to 2.5% neutral range. Uncertainty is highly elevated, however, and, if trade tensions escalate, further easing may well be required later in the year to help support business and consumer confidence.”
SYLVAIN BROYER, CHIEF EMEA ECONOMIST, S&P GLOBAL RATINGS:
“The policy rate stands comfortably within the estimated neutral range and is effectively at zero in real terms. The labour market is still tight, meaning the unemployment rate is below its equilibrium, and the ECB believes in a Phillips-like relation between unemployment and inflation. On top of that, Germany is about to start a huge re-flation of its economy that will have positive spillovers over the rest of the euro zone and beyond.
“Maybe the next ECB move is not down, as markets believe but the pause can last and the next move might be up.”
MATHIEU SAVARY, CHIEF STRATEGIST, BCA RESEARCH:
“The ECB stood pat today, but this pause is not the end of the story. Disinflation is already deeply entrenched across the euro zone. Now, with a stronger euro, looming U.S. tariffs, and intensifying Chinese competition, the region faces a new threat: deflation. The Governing Council may soon find itself forced to cut rates more aggressively than markets currently anticipate.”
(Reporting by the Reuters Markets Team; Compiled by Dhara Ranasinghe, editing by Amanda Cooper)
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