European Central Bank keeps interest rates on hold as growth picks up

Germany, in particular, is the real victim of the ECB's low interest rate policy.

In a statement, the European Central Bank said it expects interest rates "to remain at present levels for an extended period".

The ECB also left its stimulus policy unchanged, but signaled an end to further rate cuts, as inflation remained below its target despite a quickened pace of economic growth.

All told, eurozone growth during the first quarter was double that of the US, a welcome development for the central bankers at the ECB ahead of their latest policy decision Thursday afternoon in Tallinn, Estonia.

"Measures of underlying inflation remain low and have yet to show convincing signs of a pick-up, as unutilised resources are still weighing on domestic price and wage formation", Draghi said.

The ECB is not expected to make any changes to monetary policy, but traders will be watching President Mario Draghi's statements for his assessment of the euro area economy.

The euro, however, is not making much of this removal and now trading at 1.122 against the dollar.

The Bloomberg report, which was attributed to unnamed euro-area officials, suggested that the European Central Bank would show consumer-price growth falling to around 1.5 percent over the next three years, down from March predictions which estimated growth of between 1.6 percent and 1.7 percent. Draghi said risks to growth are now "broadly balanced" - a tweak from last time out when risks were "tilted to the downside".

The bank has been buying 60bn euros worth of bonds every month since 2015. As the central bank has insisted that the bond purchase scheme would have to cease before rates are hiked, some analysts believe it could take years before the first rate increase is realized.

Eurostat said the 19-country euro zone expanded by 0.6 percent quarter-on-quarter and by 1.9 percent year-on-year.

The central bank's dovishness was largely anticipated by the majority of market commentators.

Analysts think the bank might announce that in September. France, the eurozone's second-largest economy behind Germany, saw quarterly growth of 0.4 percent against 0.3 percent beforehand, while Italy, the number 3, expanded by 0.4 percent instead of 0.2 percent.

But the bank's announcement Thursday reiterated that its stimulus in the form of monthly bond purchases could be stepped up if the economic outlook worsens.

Commerzbank's Schubert expects the buying to continue: "The ECB has already said that it will not terminate this program abruptly, which means that even if it thinks it is no longer necessary, it will probably let the scheme slowly taper off".

  • Zachary Reyes