European Central Bank holds interest rates steady

Alicia Cross
March 10, 2018

It continued to state that net asset purchases, at €30bn a month, would run until the end of September 2018, or until the council sees "a sustained adjustment in the path of inflation consistent with its inflation aim".

If anything the European Central Bank could be facing a bit of a problem in terms of its attempts to draw back from its easy monetary policy, particularly since the data isn't moving its way.

"Spreads more broadly may have some more breathing room as the actual government formation discussions in Italy do not look set to kick off for real until later this month when parliament convenes for the first time", ING strategists said in a note. It remains at 1.2 percent, stubbornly below the bank's goal of just under 2 percent, the level considered best for the economy.

This news helped draw investor attentions away from the ongoing talk of trade wars and tariffs, reminding markets of the fact that the US Fed could be preparing for a rate hike this very month and putting EUR/USD exchange under renewed pressure.

ECB President Mario Draghi played down the change today.

By the ECB´s decision to remove the explicit pledge to buy more assets if necessary the pledge to keep on buying assets on monthly basis remained.

Let me now explain our assessment in greater detail, starting with the economic analysis.

Economic growth of 2.7% year on year in the fourth quarter has made that promise increasingly outdated.

BOJ monetary policy decision and briefing on Friday. Private consumption is supported by rising employment, which is also benefiting from past labor market reforms, and by growing household wealth. The inflation projection for 2020 was left unchanged at 1.7 percent.

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The bank kept its growth forecasts steady for 2019 and 2020, at 1.9 and 1.7 percent respectively.

The euro fell 0.8 percent to $1.2315.

"Today's marginally hawkish concession from the European Central Bank has been overshadowed by a marginally negative revision to their inflation forecasts today, with the DAX hitting the highest level in a week in response", Joshua Mahony, a market analyst at IG, wrote in emailed comments.

Although gross domestic product in the Eurozone rose 2.5% a year ago, the prices did not rise at the same rate. Measures of underlying inflation remain subdued overall.

While its efforts are paying off and the European Central Bank actually raised its 2018 growth projection, inflation - its singular mandate - will miss its target for years to come, well past Draghi's eight-year term, which ends late next year.

Along with record-low interest rates, bond-buying was created to stoke economic growth by pumping cash into the financial system, helping boost inflation to the ECB's own target of just under 2 percent.

The recovery in the growth of loans to the private sector observed since the beginning of 2014 is progressing.

It also raised its growth forecast to 2.4 per cent for 2018, up from 2.3 per cent it expected in December.

The ECB bankers at their previous meeting have expressed the view that it is too early to change their position on the normalization of monetary policy, even to increase the confidence that inflation will reach its target.

Other reports by Free-Prsite

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