No plan for fur­ther in­ter­est rate cuts, re­as­sures the ECB

The Star Early Edition - - BUSINESS REPORT - David Mardiste and Francesco Canepa

THE EURO­PEAN Cen­tral Bank (ECB) sig­nalled yes­ter­day that it planned no fur­ther in­ter­est rate cuts as euro zone prospects im­proved, but said sub­dued in­fla­tion meant it would con­tinue to pump more stim­u­lus into the re­gion’s econ­omy.

The cur­rency bloc has been on its best eco­nomic run since the global fi­nan­cial cri­sis nearly a decade ago, but the ECB had been ex­pected to take a more cau­tious stance as the in­fla­tion re­bound has yet to show a con­vinc­ing up­ward trend.

“The Govern­ing Coun­cil ex­pects the key ECB in­ter­est rates to re­main at their present lev­els for an ex­tended pe­riod of time, and well past the hori­zon of the net as­set pur­chases,” the bank said, re­mov­ing a long-stand­ing ref­er­ence to lower rates.

It kept its easy money pol­icy un­changed as widely ex­pected, how­ever, in­clud­ing its €2.3 tril­lion (R33.21trln) bond-buy­ing pro­gramme and sub-zero in­ter­est rates, de­spite re­sis­tance from cash-rich Ger­many.

An­nounc­ing small up­grades in its growth fore­casts to 2019, ECB Pres­i­dent Mario Draghi told a news con­fer­ence the bank no longer saw risks to growth as be­ing skewed to the down­side.

“We con­sider that risks to the growth out­look are now broadly bal­anced,” he told re­porters in the Es­to­nian cap­i­tal of Tallinn, in a widely ex­pected move.

But the bank trimmed in­fla­tion fore­casts for the next three years and said “sub­stan­tial” amounts of stim­u­lus through its un­prece­dented as­set pur­chase scheme were still needed.

The euro hit a one-week low of $1.11995, down around 0.4 per­cent on the day, as Draghi spoke.

With yes­ter­day’s de­ci­sion, the ECB’s de­posit rate, its key pol­icy tool, re­mains at -0.4 per­cent. Its monthly as­set pur­chases will con­tinue to to­tal €60 bil­lion a month and to run un­til at least De­cem­ber.

The ECB said it now saw in­fla­tion this year at just 1.5 per­cent, down from a pre­vi­ous fore­cast of 1.7 per­cent. That would barely rise to 1.6 per­cent in 2019, down from an ear­lier es­ti­mate of 1.7 per­cent and fur­ther away from its of­fi­cial tar­get of at or close to 2 per­cent. Eco­nomic growth this year was seen at 1.9 per­cent ver­sus an ear­lier 1.8 per­cent fore­cast.

The ECB’s nu­anced stance was also mo­ti­vated by the big debts over­hang­ing gov­ern­ments and com­pa­nies, the piles of un­paid loans weigh­ing on banks in coun­tries like Italy and Por­tu­gal, and po­lit­i­cal un­cer­tainty ahead of elec­tions in Ger­many and Italy.

Any an­nounce­ment on its quan­ti­ta­tive eas­ing pro­gramme is seen not com­ing un­til the au­tumn. – Reuters

PHOTO: BLOOMBERG

Mario Draghi, pres­i­dent of the Euro­pean Cen­tral Bank (ECB), speaks dur­ing a news con­fer­ence to dis­cuss mon­e­tary pol­icy in Tallinn, Es­to­nia, yes­ter­day. The ECB’s chal­lenge of the day is to weigh im­prove­ments in eco­nomic growth against the lack of con­vinc­ing in­fla­tion pres­sure.

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