European Central Bank holds key rate at record low of zero percent

No discussions of firing the QE bazooka again yet.   Business Insider

Draghi alluded to a possible extension of quantitative easing beyond March 2017 sending EUR/USD to its lowest level since March.

The comments came after the European Central Bank left interest rates unchanged at record lows of zero earlier Thursday and kept the deposit facility rate at -0.4%.

Analysts are predicting that the European Central Bank won't take any big decisions today, but might set the ground for fresh action at its December meeting, or early 2017.

Its deposit facility remains at -0.4% - meaning that banks are paying a premium for the ECB to hold their money.

ECB President Mario Draghi also doused recent market speculation that the central bank had discussed winding down its €1.7 trillion asset-buying programme. Despite the rising unease with the ECB's current monetary policy - especially in Germany - Draghi is expected to reiterate the need for maintaining robust and substantial stimulus to support the European Union economy.

Marilyn Watson, head of fundamental fixed income strategy at BlackRock, said with inflation running well below the ECB's target of near 2% Draghi had no choice but to keep monetary policy relaxed.

In response to a question at the conference, the president said an "abrupt ending" to bond purchases is "unlikely".

Draghi said risks to the eurozone's growth outlook remain "tilted to downside" and that those risks were largely related to the "external environment".

Inflation has missed the ECB's target of almost 2 percent for years as high unemployment keeps a lid on wages, high debt levels choke investment, demand for goods and services remains weak and sharply lower oil prices drag down input costs. The September nominal CPI of 0.1% was below the 0.2% estimates, while retail sales fell 0.1% in August, well below the +0.3% estimate. Reports said Russian oil officials have indicated Russia could increase its oil production if demand for its oil increases.

Some analysts think that persistently low inflation will lead it to extend the bond purchases for at least six months. "No signs yet of convincing upward trend in underlying inflation". The ECB's first priority is price stability - that is, avoiding both extremes of inflation or deflation. Analysts say the bank could adjust the rules of the bond purchase program to permit it to buy a wider variety of bonds.

When pressed by reporters, he added that once the programme does near its end, the bond purchases will be reduced gradually.