ECB paves way for more stimulus in September

Published on 25/07/2019 - 18:30•Updated 18:51

The European Central Bank kept interest rates unchanged at the meeting in Frankfurt with the main refinancing rate remaining at zero and the deposit rate at minus 0.4%.

And when it comes to Mario Draghi its the language that matters and gives more indications than anything else.

Mario Draghi, ECB President: "We expect them to remain at their present or lower levels at least through the first half of 2020, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to our aim over the medium term."

When Draghi says 'lower' he is signalling more stimulus in September. The ECB is expected to cut the deposit rate even more.

The negative rates are supposed to discourage banks from parking cash with the ECB rather than lending it out or investing it.

The primary objective of the ECB's monetary policy is to maintain price stability. It aims at inflation rates of below, but close to, 2%.

That's not the case now.

In June inflation was at 1.3%, just a bit higher than in May. But still rather far from the ECB target.

The ECB's policy is not based on GDP growth, and yet Mario Draghi said: "Incoming economic data and survey information continue to point to somewhat slower growth in the second and third quarters of this year. This mainly reflects the ongoing weakness in international trade in an environment of prolonged global uncertainties, which are particularly affecting the euro area manufacturing sector."

Mario Draghi's non-renewable eight-year term at the ECB expires at the end of October.

The exiting president of the ECB famously vowed to do "whatever it takes" to preserve the eurozone currency 7 years ago.

Introducing more stimulus in September would be in line with that promise and would help lay the ground for his successor, Christine Lagarde.

When asked about a possible job swap with her, Draghi said he is not available.