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ECB chief Mario Draghi
Image: Getty Images/I. Znotins

ECB on course to end stimulus

July 26, 2018

The European Central Bank remains on track to pull the plug on its massive stimulus program for the eurozone, despite an uncertain global trade outlook and signs of slowing growth in the 19-member bloc.


The European Central Bank (ECB) remains unperturbed by global trade tensions, leaving its plans to exit massive stimulus for the eurozone by December unchanged as signs of a transatlantic thaw appeared.    

The ECB's 25-member governing council said on Thursday it was holding its benchmark refinancing rate at a record low of zero.

Read more: The ECB: 20 years of protecting the euro

However, the Frankfurt-based bank said it was cutting its monthly bond purchases from €30 billion ($35 billion) to €15 billion from October to December, when the quantitative easing scheme is due to end.

With inflation rebounding, the ECB decided last month to end a €2.6 trillion bond purchase scheme by the end of December but also promised protracted stimulus for years to come as the eurozone economy remains far from full health.

ECB calls an end to bond purchases

"The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2 percent over the medium term," the ECB said in a policy statement.

Rising uncertainty

The ECB has already spent around €2.5 trillion buying bonds since 2015 and has kept its deposit rate below zero, effectively charging banks for their idle cash, for four years in a bid to revive inflation.

Recently, signs have emerged that the 19-member eurozone economy has lost momentum just as US President Donald Trump stepped up his threat to impose tariffs on some imports as part of the White House's "America First" agenda. London-based IHS Markit research group said on Tuesday its closely watched composite purchasing managers' index for the currency bloc slipped to a two-month low this month.

On Thursday, ECB chief Mario Draghi said the meeting between Trump and European Commission President Jean-Claude Juncker to ease trade tensions was "a good sign," even if it was too soon to judge its outcome. "It's a good sign, because in a sense it shows that there is a willingness to discuss trade issues in a multilateral framework again," Draghi told reporters in Frankfurt. 

But "it's too early to assess the actual content," he said, warning that "the threat of protectionism" remained a "prominent" risk to eurozone growth.

Added to the uncertain economic climate is the risk that the stalled Brexit talks will result in Britain making a chaotic exit from the European Union.

sri/mm (Reuters, AFP, dpa)

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