European Central Bank (ECB) chief Mario Draghi has played down concerns over softness in the Eurozone economy as the ECB kept policy on hold, bolstering expectations that it will halt bond purchases by year-end.
Draghi argued that the 19-country currency bloc’s economy remained strong but acknowledged evidence of a “pull-back” from exceptional growth readings seen around the turn of the year.
That was after weaker growth figures from Germany, France and Italy, the Eurozone’s ‘big three’ economies.
“Overall, however, growth is expected to remain solid and broad-based,” he told a news conference after ECB policymakers held their meeting.
Draghi said risks related to the threat of protectionism had become “more prominent” but stressed the bank was confident that it was on the right track towards gradually weaning the economy off an unprecedented period of stimulus.
“The bottom line is … caution in reading these developments, caution tempered by an unchanged confidence in convergence of inflation to our inflation aim,” he said.
The ECB targets inflation of below but close to 2pc.
The euro rose 0.3pc to $1.2197 as Draghi spoke.
“The main takeaway is that nothing has changed in the ECB’s policy stance and they remain on course to taper later in the year,” said Marchel Alexandrovich, European financial economist at Jefferies.
With the Eurozone economy expanding for 20 straight quarters and millions of new jobs created, the main debate among policymakers is about how quickly to withdraw stimulus and preserve ECB firepower for the next downturn.
In particular, they need to agree an end-date for the ECB’s €2.55trn purchase programme, which has cut borrowing costs and revived growth, even if it has failed to lift inflation back to the target. With that scheme due to expire in September, the ECB will have to decide in June or July whether to extend purchases or wind them down.
But with the risk of a global trade war still looming, it may not make a decision until absolutely necessary.
Business sentiment has already taken a hit, particularly in export-focused Germany, and a full-fledged trade war could quickly hurt growth – a risk already highlighted by policymakers at the ECB’s March meeting.
Draghi said a range of one-off factors including cold weather, labour strikes and the timing of the Easter holiday period had contributed to weakness seen in a number of read-outs across the Eurozone in recent weeks.
With yesterday’s decision, the ECB’s bond purchases will continue at a rate of €30bn a month at least until the end of September, or beyond if needed to prop up inflation.
Interest rates were held at historic lows. (Reuters)
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