The European Central Bank held its monetary policy fire Thursday, but analysts expect it to flag fresh stimulus in September as the real economic fallout from Brexit makes itself felt.
The ECB's decision-making governing council voted to hold eurozone interest rates unchanged at their current all-time lows at its regular policy meeting yesterday. The benchmark "refi" refinancing rate was kept at zero percent, as widely expected. And governors also voted to hold the rate on the ECB's marginal lending facility steady at 0.25 percent and the rate on its deposit facility at minus 0.40 percent.
In a statement, the ECB said the governing council "continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time." And regarding its asset purchase program known as quantitative easing or QE, it confirmed that monthly purchases of 80 billion euros were intended to run "until the end of March 2017, or beyond, if necessary, and in any case until it sees a sustained adjustment in the path of inflation consistent with its inflation aim."
Analysts said they would be listening out for what ECB chief Mario Draghi has to say at his regular post-meeting news conference about the possible repercussions for the euro area from Britain's shock vote to quit the European Union.
Initial financial market turmoil has subsided in the weeks following the referendum. But economists and analysts are concerned about the real economic consequences, which are only beginning to materialize and will show up in official statistics weeks or months later.
In Germany, Europe's biggest economy, a closely watched investor sentiment survey conducted by the ZEW think tank plummeted to its lowest level in nearly four years in reaction to the Brexit vote. The ZEW data "will be some cause for concern, supporting our view that Draghi ... will take a dovish tone," said Berenberg Bank economist Florian Hense. Over the past few years, the ECB has rolled out a raft of different measures to help get the eurozone economy back on its feet.
It has slashed interest rates to all-time lows, pumped vast amounts of liquidity into the financial system via cheap loan schemes to banks, and embarked on its QE program to try and drive up chronically low inflation in the single currency area.
Eurozone inflation stood at a mere 0.1 percent in June, a long way below the level of just under 2.0 percent that the ECB regards is conducive to healthy economic growth.
But there are signs that the ECB measures are beginning to work.
In its latest quarterly bank lending survey, the ECB found that banks are easing credit standards for loans to companies, an encouraging sign, since the chronic weakness of credit activity in the euro area has previously been blamed for the absence of any noticeable recovery. Furthermore, demand for loans is also increasing, the survey showed.
While Britain is not a member of the euro area, it is a vital trading partner for European countries and it will have to redefine its relations with the bloc in terms of the movement of goods, services, capital and people. The seismic effect of Brexit could also deal a heavy blow to the stability of Europe's financial system.
Newly installed British Prime Minister Theresa May is visiting Berlin and Paris this week to sound out Germany's Chancellor Angela Merkel and French President Francois Hollande on the upcoming negotiations.
European leaders have insisted that there will be no formal talks before Britain triggers Article 50 of the Lisbon Treaty, setting a two-year countdown clock ticking towards its final departure. That political limbo could leave ECB president Mario Draghi striving to shore up eurozone growth alone as government leaders wrangle.