European Central Bank Leaves Interest Rates Unchanged

Inflation in the 19-nation single currency area stood at 2.0 percent in February, Eurostat figures showed last week, the first time since 2013 it has outstripped the ECB's mandate of "close to, but below 2.0 percent".

Any sort of change would be a significant shock for the markets, with much more emphasis placed on the comments of Draghi at 1.30 p.m. GMT (8.30 a.m. ET).

Although economic growth and consumer prices were both picking up, the central bank had been wary of a growing number of political risks and a still fragile recovery in the eurozone almost a decade after the bloc's economic woes began. The ECB has said it will not change its monetary policy based on such a rise in inflation and in the introductory statement from the latest ECB meeting it was communicated that "the Governing Council will continue to look through changes in HICP inflation if judged to be transient and to have no implication for the medium-term outlook for price stability". The rate on the bank's marginal lending facility remains at 0.25%. The yield on these bonds was set at 2.187 per cent.

The vast majority of economist polled by Reuters expect the European Central Bank to stay its hand, at least in the first half of the year, having done enough for growth to remain on the sidelines until the most contentious elections are over.

Investor nerves are also affecting debt of periphery countries such as Italy and Portugal even though the ECB's main indicator of stress in the financial system is trending downwards.

It may also debate but probably reject calls to give up a reference to lowering rates or buying more bonds if necessary.

Next weekend's G20 meeting in the German town of Baden-Baden may complicate policy further.

"Our economists' baseline being that such a move is still six months away, with the possibility of an earlier announcement in June", Deutsche Bank strategist Jim Reid said.

  • Zachary Reyes