European Central Bank keeps massive stimulus in place as trade headwinds rise

European Central Bank keeps massive stimulus in place as trade headwinds rise

The deposit rate, now the bank's primary interest rate tool, will remain at -0.40 percent.

Mario Draghi said Thursday that recent data points to "some moderation" in the economic growth in the 19 countries that use the euro, while still remaining "consistent with a broad-based expansion".

- During the press conference, President Draghi highlighted last year's strong economic growth.

The bank also reiterated that its bond purchasing scheme would remain at its current monthly pace of €30bn until at least the end of September 2018, or until the council had seen a sustained change in inflation towards its target of almost two per cent.

Draghi dismissed the slow-down as of little outcome to the broader themes of regional growth and convergence with more normal levels of inflation in the medium-term - at or just below the ECB's target of 2.0%.

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Draghi said there was also concern over the risk of an escalation in protectionism.

Unpaid loans at large euro zone banks totalled 759 billion euros at the end of September, having fallen from 920 billion euros only a year earlier thanks to strong economic growth and ECB pressure on banks to offload them.

But despite slow progress and shades of gloom, the European Central Bank "must continue to hint at an announcement (of further policy changes) in June or July, to continue anchoring expectations of a normalisation" away from QE, Credit Agricole analyst Louis Harreau said.

Indeed it may be traders were reacting to the insight that the only "certainty" was that nothing is certain in relation to ending the ECB's stimulus programme (QE). Weather, strikes, the timing of Easter and more factors are behind this moderation.

European Central Bank Vice President Vitor Constancio said on Thursday that banks in Europe have reduced the volume of non-performing loans (NPLs) on their books but more progress is necessary.

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Sweden's central bank meanwhile remained dovish at a policy meeting, pushing the crown to the lowest versus the euro since late-2009.

A key worry is that protectionist rhetoric from the United States could push down the value of the dollar even as the Federal Reserve is likely to raise interest rates several times this year, to support the U.S. currency. The currency is up 1.5% against the dollar this year and just 0.3 percent higher on a trade-weighted basis.

"What is certainly known is that these events have a profound and rapid effect on confidence, on business confidence, on exporters' confidence, generally speaking, and confidence can in turn affect the growth outlook".

Nonetheless, the euro's recent strength has had a relatively limited impact in recent weeks.

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