ECB leaves interest rates unchanged

Following the latest monetary policy meeting of the bank's Governing Council, the main refinancing rate - its headline interest rate - has been kept at 0.0%, while the deposit facility rate was unchanged at -0.5%.

The marginal lending facility, which is paid by banks which borrow from the ECB, was also unchanged, at 0.25%.

In its accompanying statement, the Council said it expected the key ECB interest rates to "remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics".

It also confirmed the central bank would continue to conduct net asset purchases under the pandemic emergency purchase programme with a total envelope of €1.85trn until "at least" the end of March 2022.

"Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council expects net purchases under the PEPP over the coming quarter to continue to be at a significantly higher pace than during the first months of the year," it said.

The focus now will be on a press conference hosted later this afternoon by ECB president Christine Lagarde.

Jacqui Douglas, chief European macro strategist at TD Securities, said: "The ECB kept policy rates unchanged, as had been expected, with all eyes on their comments on the pace of PEPP purchases. And in line with our base case, the ECB kept the key wording unchanged.

"Going into the press conference, Largarde will likely be asked about whether the ECB will slow the pace of purchases through the summer, due to liquidity issues. More importantly, she’ll also likely be asked about whether purchases could end up higher than in the first quarter, but at the same time, more obviously lower than in the second quarter. She’s going to have to be careful with her language to avoid giving the impression of a more substantial tapering."

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said: "Steady as she goes seems to be key message [from] Frankfurt.

"Given that the ECB recently lifted the pace of PEPP to about €20bn a week, our interpretation is that will seek to maintain this pace through the third quarter. As always, however, the definition of ‘significantly higher pace than during the first months of the year’ isn’t set in stone.

"The tone of Lagarde’s economic assessment, which probably will be more positive than in April, and associated speculation about whether the ECB has discussed when and how to wind down the PEPP will be one of the key topics at the press conference. We suspect that the president will respond that it is ‘too soon’ to have this discussion, even if we are pretty confident that the Council is now debating this."