ECB extends historic low rates, details cheap bank loans

European Central Bank (ECB) governors yesterday agreed to hold key interest rates at historic lows until at least mid 2020, a spokesman confirmed, adding at least six months to a key policy for stimulating growth and inflation as clouds loom over the 19-nation eurozone. The ECB’s main refinancing rate remains at zero, while financial firms must pay a negative interest rate of 0.4 per cent on deposits with the central bank.

The ECB spokesman added that the Frankfurt institution would offer highly favourable interest rates to banks in a third round of a massive lending scheme known as TLTRO. If lenders in turn provide enough credit to the wider economy, the ECB could offer interest as low as -0.3pc -- in effect paying them to borrow money. President Mario Draghi is now in the spotlight to outline yet further steps the Frankfurt-based institution could take to combat uncertainty over future growth and inflation in the 19-nation eurozone at a press conference in Vilnius.

“Market participants will turn to Mario Draghi for any new hint at how exactly all (the) ECB’s instruments could be implemented, if needed,” said Frederik Ducrozet, a strategist at Pictet Wealth Management. The ECB chief is expected to repeat his April stance that the bank stands ready to open its “toolbox” that he insists contains “plenty of instruments” to respond to any downturn.