Saturday, 22 September, 2018

Draghi Faced Nowotny Plea to Discuss ECB Policy

Draghi Faced Nowotny Plea to Discuss ECB Policy Draghi Faced Nowotny Plea to Discuss ECB Policy
Lindsey Cook | 27 April, 2018, 00:43

The ECB governing council at its meeting today decided that the interest rate on the main refinancing operations, the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00 per cent, 0.25 per cent and (-) 0.40 per cent respectively.

He noted that the European Central Bank expect GDP growth to remain solid and broad-based, even with the moderation in activity indicators seen so far this year and suggested this may partly be due to a pull back from high levels as well as temporary factors.

"The interesting thing is that we didn't discuss monetary policy per se", he said.

Early hints a slowdown could be coming for the single currency's 19-member nations after a year of unexpectedly muscular growth also stayed policymakers' hands.

ECB President Mario Draghi referred to the recent moderation in growth but expressed confidence that the recovery remains solid.

European Central Bank chief Mario Draghi is expected to play down worries over recent softness in the euro zone economy, even as he keeps option to end lavish bond purchases by the close of the year.

There is caution as well as confidence on inflation, he also said. It is up around 1.5 percent against the USA dollar so far this year and was trading at $1.2155 shortly after 1 p.m. London time.

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"The economy has shifted down a gear at the start of this year", Commerzbank analyst Christoph Weil commented, but "there is no need to fear a massive plunge in economic growth". But with the risk of a global trade war still looming, it may not make a decision until absolutely necessary. Weather, strikes, the timing of Easter and more factors are behind this moderation.

With Thursday's decision, the ECB's rate on bank overnight deposits, which is now its primary interest rate tool, remains at -0.40 percent.

A key worry is that protectionist rhetoric from the U.S. could push down the value of the dollar, an economic anomaly as the Federal Reserve is likely to raise interest rates several times this year, a natural support for the USA currency.

"What is certainly known is that the events have a profound and rapid effect on confidence, and confidence can in turn affect the growth outlook", he said.

Euro zone inflation is so weak that even after the creation of 9 million jobs since early 2013, measures of underlying price growth that strip out energy and food are barely rising.

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.

This confident message sent the EUR/USD to the highs of the day below $1.2200, but markets remain cautious.

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