Hopes linger for euro zone QE after ECB holds rates
The European Central Bank (ECB) held interest rates at record lows on Thursday, as analysts debated whether a new asset-purchasing program would be announced later in the day.
The bank, which controls monetary policy in the 18 European countries that use the euro, held the rate on its main refinancing operation at 0.05 percent. The rates on its marginal lending facility and its deposit facility stayed at 0.3 percent and -0.2 percent respectively. The negative interest rate on the deposit facility means banks are effectively charged for parking money with the ECB-the first time a major central bank has instigated such a move.
Focus now moves to the regular press conference at 1:30 p.m. GMT with ECB President Mario Draghi, at which any further monetary policy changes will be announced. With euro zone inflation estimated at only 0.3 percent in November-well below the ECB's targeted rate of around 2 percent-some analysts have called for Draghi to launch a sovereign bond-purchasing program, also known as quantitative easing (QE).
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These hopes have been piqued by a stream of weak economic data from the euro zone, the latest of which was Wednesday's Purchasing Mangers' Index (PMI) that showed business activity hit a 16-month low in November . Germany and France-the 18-country zone's two biggest economies-both posted disappointing figures.
The ECB has already launched a slew of easing measures to boost inflation and expand its balance sheet. As well as cutting interest rates, the bank has started buying asset-backed securities (ABS) and covered bonds.
Last week, the bank said it had bought 368 million euros ($453 million) worth of asset-backed securities (ABS) and 17.8 billion euros ($22 billion) of covered bonds.
Goldman Sachs strategist Francesco Garzarelli told CNBC there was a 50 percent chance of the ECB starting government bond purchases between January and March next year.
"There is an idea that the baton in this QE relay has been passed to the ECB, hence the government bond purchase discussion," Garzarelli, co-head of global macro and markets research, told CNBC on Thursday.
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