ECB likely to hold interest rates at zero until 2019, says analyst

The European Central Bank is unlikely to raise its key interest rate, currently at zero per cent, until 2019, a senior BNP Paribas asset-management executive told a conference in Dublin on Tuesday.

This raises the prospect of ECB president Mario Draghi seeing out his entire eight-year term, to October 2019, without ever having raised interest rates, as he seeks to reboot inflation and the euro-zone economy.

BNP Paribas Investment Partners' chief investment for euro sovereign and aggregate bonds officer, Patrick Barbe, said he expected the ECB to extend the time frame of – and ease restrictions on – its government bond-buying programme, which have impacted its purchases of Irish and Portuguese securities.

Purchases lagging

Current ECB rules mean the central bank cannot own more than 33 per cent of any single bond issue or of a country’s total debt, which resulted in ECB purchases of Irish and Portuguese bonds beginning to lag other euro zone members earlier this year.

Mr Barbe sees the ECB moving in the coming months to extend the lifetime of the bond-buying programme, known as quantitative easing, by six months beyond its scheduled end in March 2017. He also sees the issuer and issue restriction rising from 33 per cent to 50 per cent.

In addition, he sees the ECB, which currently can buy only bonds that mature between two and 30 years, widening the net to capture securities outside this time frame.

The ECB’s governing council, which meets this week, is widely expected by analysts to defer a decision on its asset-purchase programme until December.

Earlier this month, Mr Draghi said euro-zone inflation should return to the ECB’s target of close to 2 per cent by early 2019 at the latest.

"Our inflation rate will pick up during the course of 2017, and then will continue moving in 2018 toward the objective which is close but below 2 per cent," Mr Draghi said at the annual meeting of the International Monetary Fund in Washington. "This is predicated on maintaining the extraordinary support of our monetary policy."