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ECB to keep rates unchanged amid weakening economy

Daniel Roland, AFP | File photo of the European Central Bank (ECB) in Frankfurt.

European Central Bank policymakers on Thursday responded boldly to fears of a eurozone slowdown by announcing that interest rates would stay unchanged for the rest of the year and launching a fresh round of super-cheap loans to banks.

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The Frankfurt institution surprised observers by saying that key interest rates would remain at their current historic lows "at least through the end of 2019".

The ECB's main refinancing rate currently stands at zero percent, the rate on the marginal lending facility at 0.25 percent and the rate on deposits at minus 0.4 percent, meaning that banks pay to park money with the ECB.

Until now the ECB had been saying rates would stay unchanged through the summer.

The change in language suggests policymakers are more worried than markets thought about weaker global momentum as Brexit uncertainty, US-led trade friction and sluggish Chinese growth take their toll.

The bank also stunned observers by announcing a third wave of ultra-cheap loans to banks in the hopes of averting a liquidity crunch just as the slowdown begins to bite.

The so-called TLTRO scheme or targeted long-term refinancing operation programme aims to encourage banks to keep lending to businesses and individuals by offering attractive rates.

The so-called TLTRO-III package will start in September and end in March 2021, offering two-year loans to help "preserve favourable bank lending conditions", the ECB said in a statement.

The ECB has already loaned banks more than 700 billion euros ($790 billion) under previous TLTRO rounds.

The latest set of loans is due to expire in June 2020.

(AFP)

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