Listen to this article
No surprises here. Yet.
The European Central Bank has opted to keep interest rates on hold, as expected (0 per cent on the main refi rate; -0.4 per cent on the deposit rate), and retained the same pace of monthly bond purchases, but the big test will come at president Mario Draghi’s press conference later this afternoon.
Our Frankfurt correspondent Claire Jones writes:
It is the first time in four years that the council has met knowing that inflation is above its target of just under two percent — heaping pressure on the ECB’s German critics for it to begin raising rates.
None of the eurozone’s 25 monetary policymakers think growth is strong enough to warrant rate rises just yet. But signs the recovery is strengthening and broadening — coupled with the re-emergence of price pressures — have triggered calls for Mr Draghi to rethink the ECB’s commitment to lower rates again and expand its quantitative easing programme should growth disappoint.
In recent months he has used his statement to say that, if the economy worsens, the ECB could cut rates further or increase the rate of bond buying beyond the current €60bn a month. Until now, those remarks have not mentioned the conditions for pulling back support, conditions that Mr Draghi dubs a “high-class problem” that the eurozone is still too weak to face.
Hawks now want that to change — either by the cutting the commitment to lower rates out of the statement, or acknowledging that the ECB could rein in its bond buying should growth and inflation rise at a faster pace than expected.
Any shift in the rhetoric is likely to be interpreted as a step towards a decision on tapering the bond buying programme. Most ECB-watchers predict the ECB president will leave the important parts of his opening statement unchanged, however, with Mr Draghi expected to emphasise that — at 0.9 per cent — the core measure of inflation remains weak.
New forecasts for inflation and growth are expected to upgrade projections for inflation by as much as half a percentage point this year.
Current quarterly projections, issued in December, forecast inflation of 1.3 per cent in 2017, 1.5 per cent in 2018 and 1.7 per cent in 2019.
Major changes to the growth outlook are not expected. In December, economists predicted a robust 1.7 per cent expansion in 2017 and 1.6 per cent for both 2018 and 2019.