The European Central Bank (ECB) kept its main interest rate unchanged in a widely expected decision.
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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.
Fed-funds futures, used by investors to place bets on USA central-bank policies, showed Thursday the chances of the Fed raising interest rates were 23% at its June 14-15 meeting and 61% by its July 26-27 meeting, according to CME Group. As a next step, on 8 June we will start making purchases under our corporate sector purchase programme (CSPP).
The euro declined on Thursday on the European Central Bank’s cautious economic outlook, while oil prices recovered on a drop in US crude inventories, erasing losses on OPEC’s failure to reach a deal to set an output ceiling. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) stood at 1.2 percent in April 2016, compared with 1.1 percent in March.
The two-year German yield fell to minus 0.53 percent, its lowest level since the ECB’s March meeting when yields surged after European Central Bank chief Mario Draghi said he did not anticipate further interest rate cuts.
First-quarter eurzone growth has beaten beating expectations amid rising business sentiment, a surge in investments and stable household consumption. April unemployment rate is seen at 10.2 percent, a shade below 10.3 percent month before. It also raised its economic growth prediction, to 1.6 percent from 1.4 percent.
Interest rates have already been cut to historic lows, and the ECB will begin buying corporate bonds today – this policy is described by the New York Times as “effectively paying banks to lend to businesses”. He later said that shift in risk was “not dramatic”.
Draghi took a moment to feel savers’ pain, noting that low rates are a symptom of weak growth and would rise when the economy picks up.
The bank increased its inflation outlook for 2016 to 0.2 percent from 0.1 percent previously. Inflation in 2018 is expected to be 1.6%.
Nonetheless, “in order to reap the full benefits from our monetary policy measures, other policy areas must contribute much more decisively, both at the national and at the European levels”, he said. The central bank’s new economic and inflation forecasts will also be released.
Central bankers generally try to avoid steadily falling prices, or deflation, since this can result in consumers putting off purchases, thus lowering economic output and living standards.
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Yet Draghi’s carefully nuanced statement underlined how fragile that recovery remains and how vulnerable it is to risks, including a slowdown in the global economy and possible fall-out from Britain’s June 23 European Union referendum.
