The ECB is scheduled to make its latest interest rate decision public on Thursday as the market holds a major expectation that all major rates will remain the same, the market is however filled with uncertainty as to whether bond purchases will be extended beyond March 2017.
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With unemployment hovering at 10 percent, governments holding back on spending as they manage down record debt piles, and industry sitting on vast unutilized capacity, growth can not take off, putting a lid on inflation.
Mr Draghi added that the ECB’s quantitative easing programme will continue at a rate of €80bn a month until March 2017 “or beyond if necessary”.
The euro gained ground after Draghi’s comments, hitting a two-week high of $US1.1326 ($A1.4817) before paring gains to trade up 0.15 per cent at $US1.1254. Asian markets were mostly lower Friday on disappointment about the European Central Bank’s decision to keep policy unchan.
They trimmed their inflation projection for next year to 1.2 per cent from 1.3 per cent, but left its outlook for 2018 unchanged at 1.6 per cent.
Indeed, fresh quarterly forecasts to be unveiled by Draghi, could show a slightly lower path for underlying inflation while recent research published by the European Central Bank suggested that long term inflation expectations are drifting lower, an indication of waning confidence in the ECB’s policies.
The ECB faces worries about the economy on several fronts.
With unemployment hovering at 10 percent, governments holding back on spending as they manage down record debt piles, and companies producing far less than they can, growth cannot take off, putting a lid on inflation.
The ECB is targeting a eurozone inflation rate of levels below, but close to, 2%, compared to the 0.2% now predicted for this year.
Responding to a crescendo of criticism from lenders about low or negative rates cutting into their profits, Draghi pleaded for patience to give the ECB’s unprecedented stimulus of low rates, cheap loans to banks and a huge injection of liquidity a chance to work.
The index is down almost 5% in 2016, although it has rallied over the last two months from lows reached in June after Britain’s shock “Brexit” vote to quit the European Union. Britain would have to renegotiate its trade conditions with the European Union over several years, and no one can say now how things will turn out.
The kiwi had gained nearly 2 per cent in the past week on a trade-weighted basis as relatively robust economic data and gains in prices of dairy products and other commodities lifted sentiment for the currency in the face of weak data in the United States and elsewhere.
Europe’s banking system remains another drag on growth, as low profits overall and large amounts of bad loans in Italy constrict banks’ ability to pass on the ECB’s low interest rates to their clients.
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“Ultimately we’ve got to be patient”, Draghi said.
