ECB Leaves Stimulus Unchanged as Draghi Gauges Brexit Effect

The European Central Bank kept its stimulus program unchanged as policy makers try to assess the economic damage inflicted by the U.K.’s vote to leave the European Union.

Officials left the main refinancing rate at zero, the deposit rate at minus 0.4 percent and asset purchases at 80 billion euros ($88 billion) a month as predicted in a Bloomberg survey. Britain’s decision to split from its main trading partner will loom large as President Mario Draghi addresses reporters at 2:30 p.m. in Frankfurt.

“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 central bank “confirms that the monthly asset purchases of 80 billion euros are intended to run until the end of March 2017, or beyond, if necessary, and in any case until it sees a sustained adjustment in the path of inflation consistent with its inflation aim.”

Draghi has predicted the U.K. referendum result will slow euro-area growth and he may signal officials are ready to deploy more stimulus in September, when they will also have new economic forecasts. Still, a major concern is how much further the ECB can go, with its 1.7 trillion-euro asset-buying program increasingly constrained by ultra-low yields.

“The big question for Draghi is how bad the Brexit will be for the economy and to answer that question they need to wait some time for the dust to settle,” Anatoli Annenkov, a senior economist at Societe Generale SA in London said before the decision. “The room to act is very limited and if they expand asset purchases they will have to decide how to deal with a problem of a much-reduced universe of eligible bonds.”

To follow Bloomberg’s live blog on the ECB’s rate decision, click here.

The euro was little changed after the announcement, trading at $1.1017 as of 1:54 p.m. in Frankfurt.

Policy makers around the world are grappling with the fallout from Britain’s June 23 referendum. The International Monetary Fund cut its outlook for the global economy this week and the Bank of England has signaled it may announce additional stimulus next month as it seeks to shore up the U.K. economy.

Economists surveyed by Bloomberg see the greatest chance of extra ECB stimulus at the Sept. 8 meeting and predicted the instrument of choice would probably be extending quantitative easing beyond March 2017.

Prolonging purchasing may raise the problem of a shortage of government bonds to buy under the ECB’s own rules on minimum yields, a situation Draghi may choose to address at Thursday’s press conference.

Yields on German debt -- which must be bought in greater proportion than other securities under the current rules of the QE program -- have collapsed after investors sought safer assets after the U.K. vote. Under its self-imposed limits, the ECB can’t buy government debt yielding less than the deposit rate.

While Draghi has predicted Brexit could weaken euro-area growth by as much as 0.5 percentage point over the next three years, Governing Council member Luis Maria Linde said last week the ECB won’t provide its estimate until September “at the earliest.” His colleague Peter Praet, the central bank’s chief economist, warned earlier this month the U.K. vote to leave “may weigh on economic confidence and partly reverse the recent improvements in investment and consumption.”

There are already signs he might be right. Euro-area consumer confidence deteriorated in July, while German investor sentiment slid to its lowest level since November 2012.

A problem for ECB policy makers is that although they’ve gone out of their way to spur credit expansion, the pick-up in lending remains timid. Likewise, while inflation ticked up to 0.1 percent in June after two months below zero, it’s still far away from the ECB’s goal of just-under 2 percent.