The consensus was that the ECB would not change the main lending rate nor the deposit rate, and this is exactly what happened. The “nuclear option” of setting a deposit rate was kept in storage for now.
EUR/USD was trading at around 1.3110 towards the decision, after climbing to new 4 week highs. The pair is now marginally higher.
The focus now shifts to the press conference by Mario Draghi. Stay tuned for a live blog of this event.
In May, the ECB cut the main lending rate from 0.75% to 0.50% and left the deposit rate unchanged at 0%. The deterioration in the economic situation and the drop in inflation triggered the cut of the main rate, but not in the deposit rate.
However, in a response to a question, Draghi showed a lot of openness to a negative deposit rate, and this sent the euro plunging.
- 4 Scenarios for the ECB: Negative rate to be put on hold? – ECB Preview
- ECB: Decent chance of a negative deposit rate, just not in June – Simon Smith
- Are negative interest rates really possible? Yes is the answer – Matthew Lifson