EURJPY Euro vs Japanese Yen

The European Central Bank left its interest rates unchanged on Thursday as recent data suggest that economic recovery is continuing, albeit at a sluggish pace, while lower oil prices, stronger euro and the Chinese slowdown pose risks to the outlook.

The Governing Council, led by ECB President Mario Draghi, kept the refinancing rate at a record low 0.05 percent, following the meeting in Frankfurt. The decision was in line with economists' expectations.

The bank also left the deposit rate unchanged at -0.20 percent and the marginal lending rate at 0.30 percent. The three main interest rates were lowered by 10 basis points in September last year.

Draghi will hold his customary post-decision press conference at 8.30 am ET, when he is set to unveil the latest ECB staff macroeconomic forecasts. Inflation forecasts are widely expected to be lowered. He is also expected to say that the eurozone is largely immune to the recent Chinese financial market crisis.

In June, the inflation projection for this year was raised to 0.3 percent from zero, while forecasts for next year and 2017 were maintained at 1.5 percent and 1.8 percent, respectively.

Growth projections for this year and next were retained at 1.5 and 1.9 percent, respectively. However, the prediction for 2017 was lowered to 2 percent from 2.1 percent.

"The growth outlook is hardly strong and the concerns over China and the appreciation of the euro present a serious external threat," Capital Economics economist Jonathan Loynes said.

Inflation remained unchanged at a very low level of 0.2 percent in August as further fall in oil prices curbed its ability to move upward. The ECB aims to keep inflation 'below but close to 2 percent'.

Given the prospect of a renewed fall in inflation expectations, the economist expects Draghi to insist again that the ECB's current $1.1 trillion quantitative easing program will be implemented in full.

Draghi may also give a further strong hint that that stimulus might be extended or accelerated, or both, Loynes said. "He won't say so, but part of the intention will no doubt be to weaken the euro again," the economist added.

Eurozone economic growth slowed slightly to 0.3 percent in the second quarter despite slight improvement in Germany, as France came to a halt, restoring the divergence between the two largest euro area economies.

In a report released Thursday, the International Monetary Fund urged the European Central Bank to extend its quantitative easing programme if there isn't sufficient improvement in inflation consistent with meeting medium-term price stability objectives.

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