Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

ECB Drops Reference to Future Interest-Rate Cut

Posted by hkarner - 9. Juni 2017

Date: 08-06-2017
Source: The Wall Street Journal

The move suggests confidence the eurozone’s recovery is strong enough to lift inflation

ECB President Mario Draghi.

The European Central Bank removed a reference to the possibility of it lowering
interest rates in its regular monetary policy statement on Thursday.

The move suggests some confidence the eurozone’s recovery is strong enough to lift inflation closer to the central bank’s medium-term target of just below 2%.

The ECB left its key interest rates unchanged Thursday.

“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 central bank said.

At its last meeting, the ECB left the door open for lowering rates.

The euro dipped slightly after the ECB update Thursday to $1.1227 from around $1.1240, having hit a low for the day of $1.1221.

The ECB retained its reference to increasing its bond-purchase program in both size and duration should conditions worsen.

Its main rate—the one charged at regular monetary policy operations—remained at 0%, with the deposit rate at minus 0.4%, meaning that banks pay to park overnight deposits with the ECB.

ECB President Mario Draghi will explain the decision and take questions at his media conference at 8:30 a.m. ET in Tallinn, Estonia, where the Governing Council met this week.

The officials assembled amid signs of gathering economic strength in the eurozone. Growth in the 19-nation bloc outpaced the U.S. in the first three months of 2017 and unemployment has fallen to an eight-year low of 9.3%. Inflation has recovered sharply, but is still below the ECB’s target. The most recent data showed inflation in May at 1.4%.

Core inflation, which excludes volatile items like food and energy, fell to 0.9% in May from 1.2% in April. Top ECB officials have said underlying inflationary pressures are too low to justify a change in policy.

However, some analysts expect core inflation to rise in the months ahead. “With the unemployment rate falling rapidly, there seems every likelihood that core inflation will start to move higher in the coming quarters,” said J.P. Morgan’s Greg Fuzesi in a note Tuesday.

Market participants will listen closely to Mr. Draghi’s opening statement to see if he expresses more confidence in the eurozone’s growth outlook. Many expect him to change his statement to say that risks to the outlook are now “balanced” rather than “tilted to the downside.”

Economists believe it is still too early for the central bank to go into detail on how it will unwind its €60 billion ($68 million)-a-month bond-purchase program that is due to run until at least December.

Investors will also listen for the central bank’s quarterly forecasts, which Mr. Draghi is due to reveal in his statement.

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