THE TAKEAWAY: EUR European Central Bank Rate Decision > Key Rate on Hold at 0.50%, Deposit Facility Rate on Hold at 0.00% > No Implementation of Negative Rates > EURJPY, EURUSD BULLISH
The European Central Bank kept its key interest rate on hold at its all-time low of 0.50%, while leaving its main deposit rate on hold at 0.00%, as the recent uptick in European data in May has put plans for further accommodation on ice in the near-term. ECB President Mario Draghi stuck to his more recent usual script, saying that “downside” risks remain to the Euro-zone growth outlook, while medium-term inflation expectations remain “broadly balanced” and “firmly anchored.” Overall, the ECB will keep policy accommodative for “as long as needed.”
While these talking points have been more or less unchanged the past several months, the big news everyone was listening for was whether or not the ECB would go ahead and implement a negative deposit rate, as a method to help spur lending in the region. Such a measure would be welcomed at this point, considering that loan growth slowed by -0.9% in April, the twelfth consecutive month of contraction.
To this end, President Draghi noted that the ECB’s Governing Council’s discussion today focused on improving credit conditions in the periphery. During his presser, the head of the ECB said that asset-backed securities purchases, another LTRO, negative deposit rates, and credit claims were all discussed as ways to help stoke economic growth. But, as he noted and as various other ECB policymakers said last week (Asmussen, Constancio, and Noyer of note), that the implementation of any new measures of such great magnitude remains far away, or rather, not going to happen in the near-term.
EURJPY 1-minute Chart: June 6, 2013
Charts Created using Marketscope – prepared by Christopher Vecchio
With market participants interpreting the ECB’s stance as having shied away from implementing negative rates or any other measures that would result in a theoretically expanded ECB balance sheet, the Euro’s stage was set for a rally. Accordingly, the EURJPY surged from ¥129.85 prerelease to as high as 130.73 during President Draghi’s press conference, before falling to 130.41, at the time this report was written.
Price action was similar in other EUR-based pairs, with the EURUSD jumping from a low of $1.3088 to as high as 1.3167, and the EURAUD rallying from a low of A$1.3769 to a high of 1.3879.
Note: ECB President Mario Draghi’s press conference was ongoing at the time of publishing; this article may not contain the most up to date information upon consumption.