Berenberg Bank economist Holger Schmieding said that following a rebound in oil prices since the ECB’s last forecasts in February and firmer growth in early 2016, the central bank “will likely raise its inflation projections”.
Advertisement
The ECB on Thursday nudged up its inflation forecast for 2016 but predicted price growth would remain below its 2 percent target through 2018 as it struggles with cheap energy feeding into the price of other goods and services.
Officials revised up growth forecasts for this year to 1.6 percent from 1.4 percent.
Draghi also said the bank has not seen low oil prices feeding into wages, a key concern for policymakers as such a second round effect would signal a loss of confidence in the ECB’s ability to return inflation back to its target of close to 2 percent.
Speaking after a meeting of the Bank’s governing council in Vienna, ECB President Mario Draghi said he expected rates to stay at present or lower levels well beyond the duration of asset purchases, which are due to last till at least March 2017.
The governing council left the main refinancing rate at zero, the deposit rate at minus 0.4 per cent, and asset purchases at €80 billion (S$123 billion) a month.
The bank doesn’t use a printing press to create money, but simply credits the commercial banks’ reserve accounts at the ECB with new euros – something it is entitled to do as the legal issuer of the euro currency. “We don’t have a clear picture of where global growth is going to go – as some regions show signs of recovery, others drop away again”, said Peter Lowman, CIO of Investment Quorum, a UK-based wealth manager.
The ECB is targeting inflation of just below 2%.
The euro declined on Thursday on the European Central Bank’s cautious economic outlook, while oil prices took a hard knock after OPEC failed to reach a deal to freeze output.
“Additional stimulus.is expected from the monetary policy measures still to be implemented and will contribute to further rebalancing the risk to the outlook for growth”.
Sterlinghas lost more than 1 percent this week against the dollar and is now at two-week lows while the cost of hedging against swings in the currency in options markets remains near seven-year highs.
The Financial Times notes that European stocks slipped and government bond prices rose while Mr. Draghi spoke.
The bank’s governing council, meeting in Vienna, said it would hold its benchmark interest rate at 0%.
Draghi commented that risks to growth are still on the downside, although the net balance of risks had improved slightly given the European Central Bank policy actions. This could spook bond investors-pushing yields up-and also drive the euro higher.
Advertisement
“Although the expected (inflation forecast) adjustment is modest, it may help put a floor under inflation expectations and allow the European Central Bank to remain in a wait-and-see mode while its latest measures work their way through the economy”, UniCredit economist Marco Valli told Reuters.
