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European Central Bank holds interest rates and bond-buying steady as it weighs up the eurozone's recovery

Apr 22, 2021, 20:18 IST
Business Insider
Christine Lagarde is the president of the European Central Bank.Olivier Matthys/Pool via Reuters
  • The European Central Bank kept its main interest rate at -0.5% and kept its bond-buying package steady.
  • Europe is still battling COVID-19 but EU's vaccination drive is picking up, causing optimism.
  • Analysts said the ECB was waiting to see how the next few months shake out for the economy.
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The European Central Bank held interest rates at record-low levels on Thursday and kept its enormous bond-buying program steady as it weighed up the recovery in the eurozone economy.

The ECB's main deposit rate will stay at -0.5%, while the coronavirus bond-buying package will stay at 1.85 trillion euros ($2.23 trillion), the governing council said in a statement.

At the bank's last meeting it pledged to step up the pace of bond purchases in response to rising bond yields, which had moved higher in anticipation of stronger growth and inflation.

COVID-19 battered the eurozone economy in 2020, and a resurgence of cases has led many countries to reimpose tough restrictions in 2021.

But policymakers and citizens see hope on the horizon as the European Union's initially slow coronavirus vaccine rollout starts to pick up speed.

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ECB president Christine Lagarde said at a press conference that there were signs that the fall in the services sector was bottoming out.

"Looking ahead, the progress with vaccination campaigns, which should allow for a gradual relaxation of containment measures, should pave the way for a firm rebound in economic activity in the course of 2021."

Yet she said that "the ongoing pandemic, including the spread of virus mutations, and its implications for economic and financial conditions continue to be sources of downside risk."

The European Central Bank's decision to hold interest rates came as no surprise to the market.

The euro was around 0.05% lower against the dollar on Thursday at $1.203, while the yield on the key German 10-year government bond was down 1.4 basis points to -0.274%.

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"The ECB's step-up in weekly asset purchases has hardly been steep but the communication to keep financing conditions easy has been enough to appease bond markets for now," said Jai Malhi, global market strategist at JPMorgan Asset Management.

Silvia Dall'Angelo, senior economist at Federated Hermes, said: "For now, the ECB sounds confident that it is making its fair contribution to support the recovery."

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