The European Central Bank pledged on Thursday to keep its aggressive stimulus policy at least until the end of the year, but markets leapt higher as it signalled there was less of a need to prop up growth and inflation in the Eurozone.

ECB President Mario Draghi said the bank had removed one phrase from his standard introductory statement that pledged it would act “using all the instruments available within its mandate” if needed to achieve its objectives.

“That’s been removed, basically to signal that there is no longer that sense of urgency in taking further actions ... that was prompted by the risks of deflation. That was the assessment of the Governing Council,” Draghi told a news conference.

That was enough to send German 10-year bond yields up 5 basis points to hit a one-month high of 0.43 per cent, while the euro rose to the day’s high at $1.0605 (Dh3.89), up more than half a per cent on the day. European shares hit session highs, erasing earlier losses.

The ECB now sees headline inflation of 1.7 per cent this year compared to an earlier estimate of 1.3 per cent, and 1.6 per cent next year compared to a previous 1.5 per cent estimate. It saw prices rising an unchanged 1.7 per cent in 2019.

The ECB is scheduled to cut the pace of its bond purchases by a quarter from next month but continue them at least until year-end, or longer if it thinks inflation is below target.

The ECB’s leadership has faced calls from Germany to start winding down its 2.3 trillion euro ($2.43 trillion) bond-buying scheme, or at least signal its intention to do so, as growth and inflation rebound.

The Frankfurt-based central bank nonetheless stuck to its plan of continuing the purchases until December. It also pledged to keep interest rates at current, record-low levels until long after that, or even cut them if necessary.

“If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration,” the ECB said in a statement.

Justifying his stance, Draghi presented upgrades in inflation expectations for this year and next but argued they did not alter the overall picture.

“There is no sign yet of a convincing upward trend on underlying inflation,” he told reporters, adding that inflation — which hit the ECB’s near 2 per cent target last month — was expected to rise “only gradually” in the medium term.

But nearly a decade after the 19-country currency bloc’s woes began, its economy is looking in better shape.

Economic sentiment is at a six-year high, trade is rebounding, services and manufacturing output is rising, and unemployment is at its lowest since 2009. Draghi accordingly announced small upgrades to Eurozone growth forecasts, now seen at 1.8 per cent this year and 1.7 per cent next.

Germany’s central bank governor Jens Weidmann and ECB director Yves Mersch have both made the case for ruling out further rate cuts.

German Finance Minister Wolfgang Schaeuble went further on Thursday, saying he was in favour of a “timely start to the exit” from the ECB’s loose monetary policy, echoing calls from the German banking association and the IFO economic institute.

 

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ECB’s Draghi says G20 must reaffirm commitment to open trade

 

FRANKFURT: The Group of 20 major world economies should reaffirm its commitment to open trade when it meets in mid-March, European Central Bank President Mario Draghi said on Thursday, after rumours it may drop a reference to opposing protectionism. Draghi also said the G20 should also retain its commitment to not using exchange rates to enhance competitiveness. “It’s quite important that the G20 reaffirms this commitment,” Draghi said at a news conference after the ECB’s policy meeting. “I was commenting before on the commitments concerning the exchange rates. I think I can say the same about the commitments of keeping open trade. They have been the pillars of prosperity for many, many years — many decades,” he said

source : gulfnews