Instant View: ECB leaves rates steady after a year of easing
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 $1.1733, below where it was before the ECB statement, after U.S. jobless data showed a larger drop than expected in initial claims. Euro area bond yields and European shares remained higher on the day.
Germany's rate sensitive two-year Schatz yield was last up 6.3 basis points on the day at 1.859%, little changed from levels seen before the decision.
Europe's broad STOXX 600 index was up 0.46% on the day.
Money market price in a more-than 80% chance of another 25-bp rate cut by year-end.
COMMENTS:
MARK WALL, CHIEF EUROPE ECONOMIST, DEUTSCHE BANK, LONDON:
"As effectively telegraphed by Lagarde, the ECB paused the easing cycle in July. The question is, will this be a short pause, or a long pause? And could this be a pause that sees 2% policy rates eventually become the terminal rate in this easing cycle? Uncertainty remains high and the ECB rightly wants to keep its options open. But if trade uncertainty fades, the combination of a resilient economy and significant fiscal easing will eventually translate into upside risks to inflation. Markets are not far away from switching focus from the last cut to the first hike."
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.
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