ECB pauses record streak of rate hikes
LONDON (Reuters) — The European Central Bank broke the longest streak of interest rate rises in its 25-year history on Thursday, as slowing inflation continued to point to an eventual drop towards its 2% target and the bloc's economy deteriorates.
The bank left its main policy rate at 4% and said current borrowing costs may be just enough to tame inflation if they stay at current levels for «sufficiently long».
The ECB did not make a change to its balance-sheet run off process, pledging to continue reinvesting bonds under its 1.7 trillion-euro Pandemic Emergency Purchase Programme until the end of next year.
The euro offered little reaction to the initial decision, trading 0.2% lower against the dollar, while euro zone bank shares were in the red, but above session lows.
MARKET REACTION:
FOREX: The euro initially dropped against the U.S. dollar before paring some of that decline to last trade down 0.2% at $1.0544.
BONDS: Euro zone bond yields dropped and the closely watched spread between Italian and German 10-year bond yields briefly fell below 200 basis points.
STOCKS: European stocks recouped some of their losses, with the STOX 600 index last down 0.7% and banks down 1.1%
COMMENTS:
RICHARD GARLAND, CHIEF INVESTMENT STRATEGIST, OMNIS INVESTMENTS:
«The ECB has officially joined the Pause Party of central bankers in wait-and-watch mode. This makes sense — inflation is falling quite sharply and they had signalled last month that the direction of travel for rates will be sideways. 'Higher for longer' is also be a mantra the ECB will be keen to repeat for a while, ensuring their work to date won’t be undone by markets anticipating rate cuts too soon.»
DEREK HALPENNY, HEAD OF RESEARCH GLOBAL MARKETS EMEA, MUFG, LONDON:
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