ECB opts to keep rates at record lows

The European Central Bank (ECB) today decided to keep interest rates at record lows for an extended period amidst market turbulance caused by the uncertainty over US Federal Reserve's exit from its quantitative expansion policy.

The governing council of the ECB, which met today, decided to keep the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility unchanged at 0.50 per cent, 1.00 per cent and 0.00 per cent, respectively.

The announcement came less than two hours after the Bank of England gave hints of keeping interest rates low.

Mark Carney, governor of the Bank of England and former head of the Canadian central bank, had earlier said that market pricing for future interest rate rises was "not warranted by the recent developments in the domestic economy".

ECB president Mario Draghi said the decision to issue 'forward guidance' was driven by market volatility, which took hold after the Fed last month set out a plan to begin slowing its stimulus.

"The governing council expects the key ECB rates to remain at present or lower levels for an extended period of time," Draghi said after the ECB meeting that left interest rates at 0.5 per cent, calling it a "very significant step".

"50 basis points is not the lower bound," he said, adding that the council had discussed cutting rates but decided against.

Draghi did not say how long ECB rates would stay at record lows. "It's not six months, it's not 12 months. It's an extended period of time."

German Bund futures hit a day's after the ECB announcement and the euro hit a five-week low, down 0.7 per cent on the day.