Eurozone growth revised up to 2-year high

Randall Padilla
June 10, 2017

Meeting was one for the history books. The written account of the bank's deliberations at its April 27 meeting indicated it felt inflation pressures remained "subdued and had yet to show a convincing upward trend". As rates have been at 0% since March 2016, this would have meant negative rates.

The precise detail of this point was a simple change of statement, from expecting interest rates would '[remain] at their present levels or lower" to "at their present levels for an extended period of time'.

The ECB also maintained its pledge to increase its asset purchases if necessary.

Tensions within the governing council have pitched so-called hawks led by the German members, who want to end emergency measures sooner, against doves nervous of pulling supports before growth is fully sustainable.

The future steps to alter ECB's monetary policy are expected to be gradual, said Nordea Bank.

"Information... confirms a stronger momentum in the euro area economy, which is projected to expand at a somewhat faster pace than previously expected", said the bank's president Mario Draghi. "At the same time, the economic expansion has yet to translate into stronger inflation dynamics".

"We consider that risks to the growth outlook are now broadly balanced", he told reporters in the Estonian capital of Talinn, in a widely expected move. GDP is witnessing growth; the money supply is growing, and loans to private sectors are also growing at a low single-digit rate. The real discussion on changes to monetary policy has been postponed.

If ECB officials downgrade their inflation outlook as predicted, then the Euro could drop sharply. Yet, that's despite the fact the bank cutting its inflation forecasts.

The euro, which weakened on Wednesday on reports that the European Central Bank would cut its inflation forecasts, was down 0.4 percent to $1.121, after dipping to $1.1196, its lowest since May 31. "However, as one half of the equation in raising global growth outlook, European markets' performance post the ECB meeting and United Kingdom election could still have an impact on emerging Asian markets". The euro strengthened to 1.266 from $1.1262. Maintaining above this support will keep the broader bias for EUR/USD to the upside. This level stands near the 1.1175 level in today's session and corresponds to the pair's 20-day moving average.

European Central Bank chief Mario Draghi added that "substantial" amounts of stimulus through its unprecedented asset purchase scheme were still needed and that there was no discussion of future tapering at the meeting. "However if their risk assessment remains unchanged, the currency could be brutally punished", says Lien. He added that the European Central Bank will be in the market for a long time. In the United Kingdom later in the day the NIESR GDP estimate. will it be revised down?

At that rate, the 19 countries that use the euro would see growth at 2.3% this year, almost double the rate of the U.S., which is on course to grow 1.2%.

The ECB's boss cited factors such as backward-looking wage negotiations and the high proportion of temporary and part-time work as factors which were dampening underlying inflation.

Other reports by AllAboutTopnews

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