ECB holds key rate steady amid spat with Germany

Frankfurt / AFP

European Central Bank (ECB) held its key interest rates steady on Thursday, but analysts believe it could pave the way for new stimulus measures soon, despite growing resistance in Germany.
The ECB’s governing council voted, as expected, to keep the benchmark “refi” refinancing rate at its current all-time low of zero percent, after cutting it to that level in March, an ECB spokesman said.
At the same time, the ECB also held the rate on its marginal lending facility unchanged at 0.25 percent and the rate on the deposit facility steady at minus 0.40 percent.
At its previous meeting on March 10, the ECB had announced a new range of new policy moves aimed at pushing chronically weak inflation in the euro area back up to economically healthier levels. These included cutting interest rates, beefing up its controversial asset purchase programme known as quantitative easing and making vast amounts of cheap loans available to banks.
And analysts said the central bank would be watching closely how the effects of those moves were mapping out in the eurozone economy.
Analysts said they expected him to stress that further action could still be on the cards further on down the line, even in the face of increasing criticism of ECB policies in Germany.
“Germany is the ECB’s main problem at the moment,” a source close to the central bank told AFP.
German Finance Minister Wolfgang Schaeuble has been unusually frank about his displeasure over zero interest rates, suggesting they were helping foment political unrest in Germany and aiding the rise of an anti-euro, anti-immigrant party, the AfD.

ECB bashing
German criticism of the ECB is extremely rare and has clearly rankled the Frankfurt-based bank.
Schaeuble and Draghi apparently cleared the air on the sidelines of last week’s meeting of the International Monetary Fund in Washington.
Nevertheless, “no matter how much public backtracking there will be, the genie is out of the bottle and Schaeuble has ‘legalised’ ECB bashing in Germany,” Carsten Brzeski, economist at ING DiBa, said.
“The war of words will not be over.”
In the past, the ECB has always reacted archly to any perceived attempts by politicians to meddle in its decision-making processes.
But when tackling Schaeuble’s criticism, Draghi will also have to bear in mind that he still needs to make additional action further down the line — which for most ECB watchers is more or less inevitable — palatable, experts said. “We expect a strong, open-hearted defence of ECB policies” and on central bank independence, said UniCredit analyst Marco Valli.
Even Germany’s Bundesbank chief Jens Weidmann, who has often been at loggerheads himself with Draghi over the ECB’s response to the threat of deflation, felt moved to rebuke Schaeuble’s attempted interference.
“An expansionary monetary policy stance is appropriate at this juncture regardless of different views about specific measures,” Weidmann said.