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ECB keeps policies steady amid political worries in Europe
April 28, 2017, 10:36 am

Draghi insists that ECB policy will not cater to or be affected by political events in Europe [Xinhua]

The European Central Bank has opted not to rock the boat and kept all its policies steady as some investors fear a shift in European politics as a result of the second round of French elections.

The decision helped boost France’s CAC 40 0.18 per cent to its highest level in 2017.

ECB chief Mario Draghi has pledged that the bank “does policies, not politics”, but there had been some fear that a victory for far right National Front candidate Marine Le Pen in the French elections would further damage the European Union in the wake of Brexit.

Le Pen had labeled EU policies which governed France as “tyrannical” and vowed to return to the franc as the national currency.

“We don’t do monetary policy based on likely election outcomes,” Draghi said late Thursday.

His comments came just as the ECB decided to maintain its quantitative easing program but continue the scale-down the scope of its bond-buying – at a monthly pace of 60 billion euros ($65 billion), down from 80 billion euros last month.

The interest rate on the main refinancing operations of the Eurosystem was lowered by 5 basis points to 0.00 per cent in March 2016.

The rate on the marginal lending facility remains at 0.25 per cent, and the deposit rate at minus 0.4 per cent.

This would mean that banks that hold money overnight at the central bank would have to pay for the service; it would, therefore, be in their benefit to encourage lending.

In December, the ECB extend the bond-purchasing stimulus program – originally slated to terminate in March 2017 – till December 2017. But in what was largely an unexpected move, the bank decided to “trim” the cost of its bond buying by 20 billion euros starting April 2017, bringing it down to 60 billion euros a month.

“The Governing Council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases,” the ECB said in a statement on Thursday.

The CAC 40, which has been restless since Emmanuel Macron of the En Marche! party came ahead of Le Pen by two per cent in the first round of the French elections, jumped 0.16 per cent – slightly down from early morning trading – to 5,280.06.

In Germany, the DAX was up 0.08 per cent at press time.

The BRICS Post with inputs from Agencies

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