No more rate cuts, European Central Bank says on Thursday


The bank's president, Mario Draghi, was careful not to give a clear signal about when it will start withdrawing stimulus - a measure of the bank's caution about the potential impact such an announcement could have on financial markets.

"Nevertheless, with headline inflation rates rolling over and core inflation still subdued, the central bank does not need to hurry in removing accommodation". Revitalizing other euro zone members' economies would also support the growth of the Estonian economy, Draghi said.

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These downgrades are behind the statement from the European Central Bank that it says that a very substantial degree of monetary accommodation is needed because inflation remains low.

Regarding non-standard monetary policy measures, the Governing Council confirms that the net asset purchases, at the current monthly pace of €60 billion, are meant to run until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.

On an annualised basis, the euro-zone economy was expanding at a rate of 2.3 per cent in the January-March period, far outstripping the 1.2 per cent rate of the United States.

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That is now predicted to average 1.5% this year, before falling to 1.3% in 2018 and 1.6% in 2019.

By way of an immediate reaction, the single currency was 0.31% weaker against the USA dollar as of 1408 BST. It would also raise returns on savings accounts and bank certificates of deposit and make them more attractive relative to stocks and riskier investments. European Central Bank staff cut their forecast for inflation thorugh 2019, penciling in an annual rate that remains below that target.

Evidence is piling up that growth in the eurozone has kicked into a higher gear and the region is recovering from the Great Recession and the ensuing crisis over high debt that pushed some eurozone countries, notably Greece, to the brink of bankruptcy.

Draghi conceded that recent data suggest "a stronger momentum in the euro area economy, which is projected to expand at a somewhat faster pace than previously expected". As the recovery strengthens and unemployment fall further, "the more confident we become that the convergence is on its way to actually satisfy the conditions".

Mario Draghi will not stop until he gets close to 2% inflation even though he admits it will be the prices of oil and food and the direction of wages that will mostly be needed to get him there.

Draghi said that the brighter outlook is largely a result of the bank's efforts and the economy still needs central bank support. I think that we can easily see a move in excess of 200 pips to the upside or the downside depending on the outcome and how much it deviates from current expectations. The Harmonized Index of Consumer Prices (HICP) inflation was 1.4% during May, down from 1.9% in April. Yet, that's despite the fact the bank cutting its inflation forecasts.