Brexit Weighs on Eurozone Growth Forecasts — ECB Survey

ECB President Draghi, in his regular press conference, stated that financial system had weathered the Brexit turbulence with encouraging resilience.

The euro rose and eurozone stocks were steady after the decision.

The euro was little moved against the dollar on the news of the hold, and five minutes after the decision was up by 0.04% on the day at $1.1016, barely moved from before the decision, when it was up 0.02%.

The two-year Treasury yield was 0.71%, compared with 0.53% at the start of the month.

The ECB, which regards an inflation rate of close to but just under 2.0 percent as conducive to healthy economic growth, has rolled out a series of measures in recent years to drive up the single currency bloc’s chronically low inflation rate. Early post-Brexit data, such as Germany’s ZEW sentiment indicator and euro zone consumer confidence figures, suggest a significant drop in confidence.

“A high level of NPLs makes banks especially vulnerable to the markets as we have seen recently”, Draghi said.

He said downside risks to economic recovery included the European Union referendum outcome, geopolitical uncertainties, emerging market weakness, balance sheet adjustments and slow progress of structural reforms.

The survey comes in the same week that the International Monetary Fund issued a stark warning about the impact of Brexit on global growth.

Since December, the ECB has pushed interest rates further below zero, accelerated its bond purchases and rolled out a series of four-year loans for banks. There were also no hints that the bank would or would not adjust interest rates further and no comments on exchange rates. The program is now due to end in March.

The ECB’s stimulus programme, where it buys €80bn of bonds a month, has also been left unchanged and will run until March 2017 and beyond “if necessary”.

The readiness of central banks to provide liquidity, and the ECB’s accommodative monetary policy measures, as well as a robust regulatory and supervisory framework, have all helped to keep market stress contained, Draghi noted.

Mr. Draghi wouldn’t be drawn on how the design of QE could be changed.

“I think in worrying about the coming months, whether we’ll actually be able to fulfill this objective, proper attention should be given to evidence we’ve given in the past few months and the ability to exploit flexibility”.

The ECB has recently ramped up its stimulus efforts, meaning it could be some time before it decides to do so again, analysts say.