ECB to hold fire on rates de­spite slow in­fla­tion

The Pak Banker - - FRONT PAGE -

The Euro­pean Cen­tral Bank is not ex­pected to cut its key in­ter­est rates this week, even though in­fla­tion in the euro area continues to slow, an­a­lysts said.

The ECB has held eu­ro­zone bor­row­ing costs at their cur­rent all-time lows since Novem­ber.

But no fur­ther mon­e­tary eas­ing ap­pears to be on the cards at the bank's next meet­ing on Thurs­day just yet, given re­cent data sug­gest­ing the re­gion's econ­omy is in a ten­ta­tive re­cov­ery, cen­tral bank watch­ers said.

At the mo­ment, de­fla­tion is per­ceived to be the big­gest threat to that re­cov­ery. Last month, area-wide con­sumer prices edged up by just 0.8 per­cent, way be­low the ECB's tar­get of just be­low 2.0 per­cent, with some ob­servers warn­ing of a de­struc­tive spi­ral of de­fla­tion. De­fla­tion is a gen­eral de­cline in prices and can be highly dam­ag­ing if con­sumers, ex­pect­ing prices to fall fur­ther, hold off pur­chases.

March in­fla­tion data for the en­tire eu­ro­zone are not sched­uled to be re­leased un­til Mon­day.

But data on Fri­day showed that in­fla­tion in Ger­many, the re­gion's big­gest econ­omy, slowed to just 1.0 per­cent this month, the low­est level in nearly four years.

ECB of­fi­cials have re­peat­edly said they see no threat of de­fla­tion, but pres­i­dent Mario Draghi re­it­er­ated last week that the cen­tral bank stood ready to act if nec­es­sary.

"If any downside risks to (our in­fla­tion) sce­nario ap­pear, we stand ready to take additional mon­e­tary pol­icy mea­sures that en­sure our man­date is ful­filled," Draghi told a con­fer­ence in Paris. "In other words, we will do what is needed to main­tain price sta­bil­ity," Draghi in­sisted. Else­where, Slo­vak cen­tral bank chief and ECB gov­ern­ing coun­cil mem­ber Josef Makuch also said the bank was "ready to adopt non-stan­dard mea­sures to pre­vent slip­ping into a de­fla­tion­ary en­vi­ron­ment. The ECB has many mea­sures on hand."

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