Weak inflation is a sign of a sluggish economy, and falling prices can hurt growth if they become entrenched.
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It was bad enough when oil dipped below $50 per barrel.
The ECB earlier estimated that a 10 percentage point change in oil prices would change headline inflation by about 0.2-0.3 percentage point in the first year, with a further, second-round effect coming later.
But having raised expectations too high in December, the ECB chief will hold short of making concrete promises, emphasising instead the bank’s readiness and ability to act.
The European Central Bank will keep all interest rates on hold when it meets today but highlight increasing growth and inflation risks, raising the prospect of further policy easing later this year.
But they did not increase the monthly amount.
Be Civil – It’s OK to have a difference in opinion but there’s no need to be a jerk. That division is complicating the outlook for future meetings.
The bank increased its stimulus measures December 3.
Only a month or so has passed since the last European Central Bank meeting “but it looks like a year”, wrote Lorenzo Codogno of LC Macro Advisors Ltd.
Early on Thursday, front-month West Texas Intermediate (WTI) crude were trading around 1 percent lower at $28.14 per barrel, while internationally traded Brent fell around 0.7 percent, or 18 cents to $27.70 per barrel.
Yet the eurozone economy so far doesn’t seem broadly affected by investors’ paper losses.
Stimulus measures announced by a central bank can have a far-reaching impact on businesses, investors and consumers. UK’s benchmark index FTSE 100 went up 33.74 points or 0.59 percent to trade at 5,707.32. The ECB disappointed markets with muted action after meeting in December.
Draghi may also face questions about falls in the price of shares and bonds of several banks, particularly in southern European countries such as Italy. It has also slashed returns on savings in conservative investments such as bonds, insurance policies and bank accounts for people looking ahead to retirement. The ECB stimulus has meant a stronger dollar against the euro, adding a headwind for USA exporters to Europe. It could help support stock prices, which have taken a beating recently. “By indicating that rates will remain at current low level of lower is a signal that the -30 [basis points] deposit rate has not exhausted room for more cuts”, said Marc Chandler, global head of currency strategy at Brown Brothers Harriman, in a note.
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Ulrike Kastens, an economist at asset manager Sal. Follow MarketWatch’s live blog of Draghi’s news conference.
