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It turns out that the worries about slowing growth in Europe and not living up to getting out of the no interest rate policy had just as much bite as bark. The European Central Bank (ECB) announced that its 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 -0.40% respectively.

The ECB’s Governing Council also conveyed that key ECB interest rates are expected to remain at their present levels at least through the end of 2019. Thursday’s communication further noted that rates could remain here for as long as necessary.

The real issue is not the news of no rate change. It is about lower growth and lower inflation targets continuing to persist through 2019.

Similar to the Federal Reserve, the ECB has an inflation target of roughly 2%. As part of its plan, the ECB intends to continue reinvesting its principal payments from debt maturities for an extended period. That time also will be beyond the date when it starts raising the key ECB interest rates. The ECB lowered its 2019 inflation expectations to roughly 1.2% for the year, versus a forecast of 1.6% made in December.

Perhaps the biggest issue is that Draghi showed that the ECB has lowered its own growth forecast for 2019, down to 1.1% from a previous 1.7% forecast from December. The markets have anticipated a guide-down of expected growth, but this looks to be even lower than the downward revision that was expected. Brexit woes and slower growth in Germany have weighed on Europe, but the news of troubled banks and other nations inside of Europe persist.

The ECB is also targeting cheap loans for some of the troubled banks in Europe. The communication said:

A new series of quarterly targeted longer-term refinancing operations (TLTRO-III) will be launched, starting in September 2019 and ending in March 2021, each with a maturity of two years. These new operations will help to preserve favorable bank lending conditions and the smooth transmission of monetary policy. Under TLTRO-III, counterparties will be entitled to borrow up to 30% of the stock of eligible loans as at 28 February 2019 at a rate indexed to the interest rate on the main refinancing operations over the life of each operation. Like the outstanding TLTRO program, TLTRO-III will feature built-in incentives for credit conditions to remain favorable. Further details on the precise terms of TLTRO-III will be communicated in due course.

The Dow Jones industrials had been trying to remain firm on Thursday, but the average was last seen down 141 points at 25,532 and the S&P 500 was down almost 14 points at 2,758. The yield on the 10-year Treasury note was down about five basis points at 2.67%.

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