Markets watch European Central Bank for hint on stimulus end

10 March, 2018, 00:43 | Author: Terri Saunders
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The central bank did not raise interest rates at this meeting, (though this was widely expected) but what they did do was drop their pledge to increase size of their quantitative easing programme if needed, meaning that they could be nearing a move towards normalizing their monetary policy measures.

The Governing Council of the European Central Bank has confirmed that net asset purchases are projected to continue at the current monthly rate of 30 billion Euro by the end of September 2018 or after that date, if necessary, and each time the Governing Council does not see a sustained correction of the inflation trend in line with its inflation target.

U.S. President Donald Trump's plan to impose tariffs on foreign steel and aluminum set off retaliatory threats, raising the specter of a global trade war.

The staff revised slightly higher growth this year to 2.4 percent from 2.3 percent, while keeping the 2019 and 2020 growth forecasts unchanged at 1.9 percent and 1.7 percent respectively.

Inflation, at 1.2 per cent, remains well below the ECB's target of just below 2 per cent.

"Our mandate is in terms of price stability". Any signs of Draghi striking a cautious tone during his conference could weaken the Euro.

He said: "It means that the European Central Bank potentially is willing to continue buying €30bn per month beyond September, but has jettisoned the willingness to adjust the program in response to a change in economic conditions". Even Draghi called the move a "backward-looking measure". Removing that promise would be a small signal that the bank is closer to exiting its stimulus.

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ECB President Mario Draghi said Thursday that the solid economic recovery in the region supported the decision to remove the so-called easing bias.

Blackrock head of global fixed income strategy Marilyn Watson said she was surprised Draghi only commented on the negative implications of tariffs, but did not reference the upside from U.S. tax cuts and fiscal loosening, alongside global economic growth.

"There is a certain worry or concern about the state of worldwide relations, because if you put tariffs against what are your allies, one wonders who the enemies are", said Draghi.

The European Union has said it would retaliate immediately against any USA tariffs, which are based on a 1962 US law allowing such measures for "national security".

Draghi warned that unilateral moves like these tariffs could trigger retaliation - which the European Union and China, among others, have already threatened.

He told the Financial Times last month that he believes the allegations are a result of his efforts to have banks undergo audits by United States law firms in 2016 and 2017, which lowered their profits. The bloc's economic growth did not gain positive momentum in the fourth quarter of 2017 either as final readings indicated yesterday. The ECB left its refinancing rate at 0%, while the rate paid on deposits parked overnight at the bank was left at negative 0.4% and the rate on the deposit facility was left at 0.25%. Its removal implies that the monthly rate of purchases, now Euro 30 billion, would not be increased.


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