ECB Keeps Rates On Hold, Market Seeks Hints

The European Central Bank kept interest rates unchanged at a record low amid rising bond yields in the region and pressure for President Mario Draghi to give investors hints on his future policy.

ECB officials meeting in Frankfurt today left the main refinancing rate at 0.5 percent after reducing it by a quarter point in May. The decision was predicted by 61 of 62 economists in a Bloomberg News survey, with Morgan Stanley the only institution forecasting a cut. Draghi will hold a press conference at 2:30 p.m.

With Portugal’s 10-year bond yield yesterday climbing above 8 percent for the first time since November and the Federal Reserve signaling it may withdraw monetary stimulus, investors are now seeking assurance from the ECB president that it has no plans to end its current accommodative stance. Some economists are suggesting Draghi will go a step further and offer commitments on the path of interest rates.

“Forward guidance is something they probably will venture into,” said Nick Matthews, senior European economist at Nomura International Plc in London. “If you get closer to the lower bound and have an external environment in which rates, especially in the U.S., are moving higher, the ECB has to differentiate itself.”

Bloomberg

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