The European Central Bank is confident Italy knows what to do.
That was the message of calm and reassurance the ECB conveyed following its monthly policy meeting, days after Italy’s government collapsed.
ECB President Mario Draghi said the fallout from Italy’s referendum has not added to pressures on the eurozone outlook because “uncertainty prevails everywhere”.
“The vulnerability that both the banking system and Italy have has been there for a long time. And so they have to be coped with and I am confident the government knows what to do and they will be dealt with.”
The ECB also extended its quantitative easing programme until December 2017.
But it also caught markets off-guard by announcing it will cut the monthly asset buys from 80 to 60 billion euros after April next year.
With high risk elections looming in four of the eurozone’s five biggest economies, the ECB was fully expected to keep the asset buys going, likely fearing that cutting back prematurely could abort a still timid recovery in the region.
But as much of its stimulus firepower is exhausted and conservative member states, particularly Germany, grow frustrated with its unprecedented stimulus, the ECB was under pressure to cut back.
The ECB has already spent more than 1.4 trillion euros buying bonds and has been at pains to emphasise that maintaining easy financing conditions is “crucial” with underlying inflation stuck below 1 percent.
The Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively.