FRANKFURT, Germany (AP) — European Central Bank President Mario Draghi held the door open for another interest rate cut as he again reassured markets that the bank is nowhere near withdrawing help for the struggling euro area economy.
But the ECB held off offering more stimulus Thursday, leaving its benchmark interest rate unchanged at 0.5 percent.
Draghi said at his post-decision news conference that “we haven’t reached the zero bound” for rates and repeated that they will “stay where they are or go lower.”
The ECB head added that the measure was “valid for an extended period of time,” underlining the long-term message he introduced at last month’s meeting, which was seen as significant shift in the way the bank communicates its message to markets.
Draghi has sought to make it clear the ECB is nowhere near a decision to withdraw any stimulus, unlike the U.S. Federal Reserve. The Fed has started discussing when it might halt a bond-purchase program aimed at holding down market interest rates and promoting growth.
But while the U.S. is recovering, the 17 countries that share the euro as their currency are still waiting for a return to growth. The eurozone shrank 0.2 percent in the first quarter, the sixth straight quarter of declining output.
Draghi repeated his forecast that the bank foresees a modest recovery later this year and next year, telling journalists that economic data “tentatively confirm” expectations that the 17-country eurozone has stabilized at a low level and will start to grow slowly out of its recession.
Recent indicators such as purchasing managers’ surveys have indicated strengthening activity and led most economists to predict the ECB would not cut rates Thursday.
In its attempts to revive the eurozone, ECB has already cut rates, made cheap long-term loans to banks, and extended unlimited helpings of credit at its regular short-term loan offerings to banks of one week, a month and three months. This time last year it unveiled plans to buy unlimited amounts of bonds in countries struggling with high borrowing costs, provided they commited themselves to strict spending limits.
A further rate cut from the ECB could, in theory, stimulate growth by making credit cheaper for businesses to borrow and expand. The problem is that the ECB’s already lends to banks at the record low benchmark rate. But those rates are not being passed on to businesses in the most troubled countries, such as Spain and Italy. That is because banks there have strained finances.
Instead, Draghi chose to reinforce his efforts to give long-term clarity to the bank’s message. He repeated that rates will stay down as long as the bank sees no threat of inflation above its goal of just under 2 percent, and as long as the growth in credit and the amount of money in the economy remain weak.
That broke with a tradition that that bank would “never precommit” on its monthly decisions.” Such long-term disclosure is termed “forward guidance” and has been used by the Fed, which has said that rate will stay low at least until employment falls to 6.5 percent.
Draghi filled in a few blanks. He said the bank would not necessarily repeat its guidance every month, so that markets don’t think each statement is good for one month only.
And he backed away from his earlier mention of publishing minutes of ECB discussions as a way of further guiding markets, as the Fed, Bank of England and Bank of Japan do. He said the bank was still looking for a “richer way” to communicate its deliberations but that it wanted to avoid any method that put pressure on individual governing council members.
Seventeen of the 23 council members serve as heads of their national central banks back home, and not publishing the minutes was seen as a way of shielding them from domestic criticism. When they gather in Frankfurt, they are supposed to take decisions for the eurozone as a whole, and not represent their nation’s interest. A decision on more communications would not come until fall, Draghi said.