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Eurozone interest rates kept on hold ECB's Draghi says 'more optimistic' on the outlook for the eurozone
(about 2 hours later)
Borrowing costs have been kept on hold in the eurozone, despite a pick-up in inflation in the 19-nation bloc. The outlook for eurozone growth is "more optimistic", the head of the European Central Bank (ECB), Mario Draghi, has said.
Accordingly, the central bank has raised its economic growth forecasts for this year and next, to 1.8% in 2017 and 1.7% in 2018.
That compares with previous forecasts of 1.7% and 1.6% respectively.
The comments came as borrowing costs were kept on hold in the 19-nation bloc, despite a pick-up in inflation.
It currently stands at 2%, which is slightly above the ECB's target of just below 2%. The bank also raised its annual inflation forecast for this year and next to 1.8% and 1.7%.
"I would say the risks of deflation have largely disappeared," Mr Draghi said at a news conference.
The main interest rate remained at 0% and the central bank's bond-buying programme, aimed at boosting the economy, was also kept unchanged.The main interest rate remained at 0% and the central bank's bond-buying programme, aimed at boosting the economy, was also kept unchanged.
The decision comes even though inflation now stands slightly above the central bank's target of just below 2%. 'Watershed moment'
However, the European Central Bank (ECB) said rates were unlikely to rise until next year at the earliest.
The bank is currently committed to continuing its bond-buying programme until at least December, although the €80bn-a-month quantitative easing (QE) scheme will be trimmed to €60bn a month from April.The bank is currently committed to continuing its bond-buying programme until at least December, although the €80bn-a-month quantitative easing (QE) scheme will be trimmed to €60bn a month from April.
But the ECB's latest statement repeated its stance in January, stating: "The governing council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases." Asked at the news conference whether interest rates were likely to rise before the end of the QE programme, Mr Draghi replied that policy makers wanted to see "a sustained adjustment in the rate of inflation, and we don't see it yet... we see progress in the recovery [but] it's a gradual process".
ECB president Mario Draghi will give further details on the ECB's decision at a news conference later. In a statement ahead of the news conference, the ECB had reiterated: "The governing council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases."
Last month, Mr Draghi told the European Parliament: "We should not react to individual data points and short-lived increases in inflation. However, Mr Draghi said that a sentence had been removed from his introductory statement to the news conference to signal that "there is no longer that sense of urgency in taking further actions... that was prompted by the risks of deflation".
"Support from our monetary policy measures is still needed." Neil Wilson, an analyst at ETX Capital, said: "Deflation is no longer the concern for the ECB - prices are not rising fast enough to warrant tapering or higher rates, but the imminent risk of deflation has passed.
"That's something of a watershed moment - the end of the beginning in terms of unconventional monetary policy tools perhaps."