INSTANT VIEW-ECB leaves rates unchanged, shrugs off inflation dip

LONDON, Feb 5 (Reuters) - The European Central Bank left interest rates unchanged as expected on Thursday, shrugging off a dip in inflation while continuing to warn about an uncertain geopolitical environment.

The euro hovered around $1.1794, a touch lower on the day EUR=EBS. Government bond yields across the euro area were largely flat with Germany's benchmark 10-year bond yield steady at around 2.86% DE10YT=RR.

The pan-European STOXX 600 index .STOXX held lower on the day, down around 0.6%

Focus now turns to ECB President Christine Lagarde's press conference at 1345 GMT.

COMMENTS:

BARRY VAN DER LAAN, SENIOR FX STRATEGIST, MONEX EUROPE:

“We have to wait for the press conference… Everybody was saying that the ECB could be on hold for the remainder of the year. We had some rumours that the next move could be a hike as well.

"Yet inflation continues to skew to the downside… well below 2%. And at the same time we see that the European boost we’re all waiting for is not going as well as expected. And on top of that we see the dollar continues to weaken. If we are looking at $1.22 then the ECB gets uncomfortable (about lower than expected inflation).

“We are looking at the possibility of a rate cut if all these things come together. I look for a bit of confirmation of that from Lagarde, I expect her to say that we are looking at every scenario but if necessary then we are ready to act.

"But our base case remains they remain on hold for at least the third and the second quarters.”

MARCHEL ALEXANDROVICH, EUROPEAN ECONOMIST, SALTMARSH ECONOMICS:

"The ECB keeps interest rates on hold and sticks to its ‘steady for longer’ forward guidance. Of course, beyond the central message, there is plenty for the ECB to focus on, including the strength of the currency, commodity prices, and U.S. policy – subjects which will undoubtedly come up at Lagarde’s press conference."

IRENE LAURO, SENIOR ECONOMIST, EUROPE AND CLIMATE, SCHRODERS:

"Euro zone growth continues to outperform expectations, with domestic demand gaining momentum as lower interest rates and fiscal support filter through the economy.

"Yes headline inflation has dipped below target, but the ECB will largely look through this given the volatility in energy prices. Instead, policymakers will remain focused on services inflation, which is still running uncomfortably high and set to be exacerbated by the expected end of the slowdown in wage growth this year.

"Today’s decision has confirmed our view that the next move from the ECB will be up, rather than down."