ECB holds interest rates steady front loads emergency asset purchases

New York (Mar 11)  The gold market is holding on to solid gains above $1,700 after the European Central Bank (ECB) reiterated that it will maintain its ultra-accommodative monetary policy.

As expected, Thursday, the ECB announced that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively.

Gold prices are not seeing much reaction to the latest monetary policy decision. April gold futures last traded at $1,732.80 an ounce, up 0.64% on the day.

While interest rates are not going anywhere anytime soon, the ECB said that it could adjust the pace of asset purchases in the first half of the year.

“Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council expects purchases under the PEPP over the next quarter to be conducted at a significantly higher pace than during the first months of this year,” the statement said.

According to some analysts, the ECB is looking to adjust is emergency asset purchase program as it tries to deal with rising bond yields.

“The Governing Council will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation,” the ECB said. “If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full. Equally, the envelope can be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation.”

KitcoNews