Europe’s modest economic recovery is finally showing signs it might be the real deal, after years of sluggishness and false starts.
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Mario Draghi unveiled largely unchanged inflation forecasts for the euro zone even as its latest stimulus measures start to take effect, and called on governments to play a bigger role in cementing the region’s pickup.
The euro was down 0.32 percent at $1.1148 EUR, fading from its highest against the greenback in over a week.
The European Central Bank (ECB) is expected to hold interest rates, and to raise growth and inflation forecasts when it meets today.
Traders are now waiting for ECB president Mario Draghi to unveil the central bank’s latest economic and price-growth forecasts at a press conference at 2:30 pm in Vienna.
Eurozone GDP growth for 2016 is projected by European Central Bank to be 1.6 percent, a revision upward from the previous month’s estimate of 1.4 percent, though some risks remain on the downside, Draghi noted, including a risk of Brexit and other geopolitical risks.
But with first quarter growth beating all expectations, economic sentiment rising, investments recording a surprising surge and household consumption holding up, the Eurozone economy is on its best run since the global financial crisis. “We have to focus on implementation”, he said.
Two months after announcing fresh stimulus measures, policymakers are putting them into action while at the same time warning that all monetary policy can do is to buy time.
However, in the run-up to the meeting there had been talk that the ECB might allow Greek banks to participate in its regular refinancing operations, from which they had been barred for more than a year.
Since then, commercial banks have relied on the ECB’s Emergency Liquidity Assistance, where the average interest rate charged is estimated to be around 100 to 150 basis points above the ECB’s benchmark interest rate.
The monthly purchases, to be conducted at least through March 2017, will pump 1.74 trillion euros ($1.94 trillion) that didn’t exist before into the banking system in hopes that all that money finds productive use as credit to businesses and consumers.
The bank increased its inflation outlook for 2016 to 0.2 percent from 0.1 percent previously.
In the run-up to this week’s meeting, being held in the Austrian capital instead of the ECB’s home venue of Frankfurt, many observers had been speculating that the ECB could offer a helping hand to Greece’s cash-strapped banks.
The ECB’s “accommodative monetary policy” needed support from structural and fiscal policy, he said.
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Draghi joined a chorus of top euro-area officials, with Dutch Finance Minister Jeroen Dijsselbloem telling an audience of business leaders in Brussels the danger to the British economy is much more acute than that faced by the rest of the EU.
