ECB raises forecasts for growth

The European Central Bank raised its forecasts for economic growth and inflation for this year and next, but it will nonetheless stick with its easy-money policy, the ECB president Mario Draghi said yesterday.

The ECB now expects growth of 1.8 per cent in 2017 and 1.7 per cent in 2018, compared with earlier forecasts of 1.7 per cent and 1.6 per cent, respectively, Mr Draghi said.

Meanwhile, inflation should reach 1.7 per cent in 2017 and 1.6 per cent in 2018 – up from previous predictions of 1.3 per cent and 1.5 per cent.

The ECB left unchanged its forecast of 1.6 per cent GDP growth and inflation for 2019.

Despite the increased forecasts, Mr Draghi said that the ECB would not increase interest rates, which it has long fixed at historic lows, or look to wind down its mass bond-buying programme.

Such loose monetary policies are designed to boost growth and inflation in the 19-nation euro zone, bringing price increases towards the central bank’s target of “close to, but below 2 per cent”.

Inflation stood at 2 per cent in February, but Mr Draghi reiterated that the ECB’s governing council plans to “look through” short-term spikes in the reading owing to volatile food and energy prices.

“This is a gradual process,” Mr Draghi said.

“The governing council members want to be convinced they see a self-sustained adjustment in the inflation rate, and we don’t see it yet.”

Europe’s benchmark government bond yield hit a one-month high and the euro firmed against the dollar after the ECB removed from its latest policy statement a reference to using all available instruments to prop up growth and inflation.

Mr Draghi said the governing council had also discussed removing a reference to lowering interest rates in its forward guidance.

German 10-year bond yields rose 5 basis points to hit a one-month high of 0.43 per cent, while yields on low-rated euro zone bonds trimmed earlier falls.

The euro rose to the day’s high at US$1.0605, up more than half a per cent on the day. Sterling also hit the day’s high of $1.2192.

The Stoxx 600 banking index and euro-zone banks index hit their highest of the day, up 0.8 per cent and 1.9 per cent.

* AFP and Reuters

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