ECB Chief Optimistic On Eurozone Growth Despite Softer Economy

Oscar PerryApr 27, 2018

The bank's quantitative easing (QE) programme, in which it now buys €30bn (£26bn) a month of eurozone bonds, is set to end in September this year.

While the ECB's 2.55 trillion euro ($3.10 trillion) bond purchase programme, has cut borrowing costs and kick-started growth, although with no inflationary effect, policymakers will need to end the indefinite growth of money. The Pound to Euro (GBP/EUR) exchange rate is now trending at levels of 1.1497.

The strength of the Euro was not a pressing matter for policy-setters either, and Draghi dismissed the impact of protectionism as so far not material enough to cause concern.

He also said the ECB's support to the economy was still needed and the central bank would reinvest bonds.

The Governing Council, led by ECB President Mario Draghi, left the key interest rates unchanged after the policy session in Frankfurt, in line with economists' expectations.

Investors are tuning in to the ECB's latest policy decision this morning, as well as updates to the bank's quantitative easing plans and a press conference from Mario Draghi.

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But with the risk of a global trade war still looming, it may not decide until absolutely necessary, so retaining the flexibility to adjust policy.

If growth shows signs of slowing that could be a reason to extend the bank's 30 billion euros ($36 billion) in bond purchases.

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. Therefore, the window in which to provide clear signals to the markets of the European Central Bank expected change to forward guidance and policy is increasingly narrow.

"Over the coming months we'll see a reduction in bond buying and it's likely that interest rates will remain unchanged until the end of the year as Draghi takes the time to wait and see how growth picks up".

Even without such shocks, the ECB has long fallen short of its central price stability objective: inflation of just less than 2.0%.

A year ago was the strongest in a decade for economic growth in the euro zone, but a recent slump in investor sentiment since the start of 2018 could threaten the ECB's inflation outlook.

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