FRANKFURT--The European Central Bank held interest rates at record lows and kept the door open to more stimulus on Thursday but gave few hints about its next move, disappointing markets that had priced in a decisively dovish tone.
ECB President Mario Draghi said the ECB will study policy options to ensure it can pursue its unprecedented money-printing programme but did not hint at the anticipated extension of its asset purchases, maintaining the March end-date in an unexpectedly balanced message.
Facing anaemic growth and inflation, the ECB is buying 1.74 trillion euros worth of bonds, holding rates deep in negative territory and giving banks free loans, hoping to end the bloc's nearly decade-long economic malaise with an infusion of cheap credit. It has managed to prop up growth, but not enough, and even shaved some of its forecasts on Thursday, reinforcing market expectations that more monetary stimulus is just a matter of time.
"For the time being, the changes (in forecasts) are not substantial (enough) to warrant a decision to act," Draghi told a news conference, adding that an extension of the ECB's asset buys was not discussed.
The euro zone's central bank kept its deposit rate at -0.4 percent, charging banks for parking cash overnight, and held the main refinancing rate, which determines the cost of credit in the economy, unchanged at 0.00 percent.
In the biggest clue about its next step, Draghi said the ECB had asked internal committees to look at various options to ensure the smooth running of asset buys. He had used similar language at the October 2015 meeting, which was followed by an easing package six weeks later.
This time the changes may be just technical but they are necessary preparatory work for any serious policy easing as the ECB is running out of assets to buy due to its self-imposed limits. "This was a clear hint that the ECB will announce technical changes to its quantitative easing purchases at the October meeting, which is a prerequisite to any extension of QE beyond March 2017," ING economist Carsten Brzeski said.
Euro zone bond yields rose, the euro hit a two-week high and stocks extended losses after Draghi said the extension of asset buys was not discussed. "The disappointment is clearly there in the market, but the ECB did keep the door open to more stimulus," said Kim Liu, senior fixed income strategist at ABN AMRO.
After 18 consecutive months of buying government bonds to pump up the economy and raise inflation, the ECB's holdings hit a landmark 1 trillion euros last week -- yet prices are seen rising a mere 0.2 percent this year, well below its target of just under 2 percent.
