ECB LEAVES RATES UNCHANGED - MARCH HOLDS MORE PROMISE

By Research Desk
about 8 years ago

 

By Ruma Dubey

 

The Indian markets do not have a single positive trigger – nothing is really happening to keep the spirits going. That explains why we are constantly attuned to global markets and happenings around the world. The Fed and China and today, the European Central Bank (ECB). Really, how does it truly matter for us in India whether or not ECB hikes or keeps rates unchanged? Yes, companies who do business there, for them, it makes sense. But for the markets, it is really not a very “most watched” event.

And the ECB interest rate decision which came in at 6.15 PM today evening, was a non-event. As was widely expected, it left its key interest rates unchanged. It kept the main refinancing rate at 0.05%, the deposit rate at minus 0.3% and the marginal rate at 0.3%.

This was expected. Despite the happenings across the globe, Europe is surely on the mend. Credit markets are slowly but surely bouncing back. Six weeks ago, the ECB announced a stimulus package, which many said that it was not enough but the ECB is sure to wait for some more time before it decides to add more.

Today, the situation has changed drastically from what it was six weeks ago. The oil price crash, the Chinese economic slowdown has thrown the international markets into turmoil. There is big worry that under the current circumstances, its Euro 1.5 trillion bond-buying program will not be enough. Many say that this stimulus is not just enough to bring back inflation to under 2% from the current levels of near zero. Yes, these developed countries have a problem of low inflation while we are grappling with high inflation – different strokes for different people.

ECB had made a forecast of inflation accelerating to 1.6% in 2017 but now with oil prices crashing, this would need a rethink. When ECB had made this projection, it has assumed that the cost of Brent would rise from an average $54 a barrel in 2015 to roughly $58 a barrel next year while it is now at $28/barrel. Cleary, the ECB would have to do more.

And the ensuing Press Conference with ECB President, Mario Draghi did just that. He said that under the present circumstances, the Bank will need to review its policy stance at its next meeting, scheduled for March. Draghi also said that he expects rates at to remain at present—or even lower levels for an extended period of time as the inflation outlook is now “significantly lower.

Well, how does this matter to the Indian markets? As said earlier, nothing really. Its just another information, from another part of the world. Today, when we live in this globalized world, it is important to keep abreast of all that goes around us and this is just that – data.

Tomorrow, it will be back to company specific, result specific news which will dictate stock price movement. Cairn India, L&T Finance, Lakshmi Vilas Bank, Spicejet and many more – all will be closely watched. Yes, all eyes will be on crude, rupee too.

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