Thursday, March 7, 2013

ECB policy accommodative, gov's must help confidence

    The European Central Bank (ECB), which earlier today held its benchmark refi rate steady, said its accommodative policy stance was supporting economic recovery and it is up to governments to bolster confidence through structural reform and continued fiscal tightening.
    ECB President Mario Draghi told a press conference that the ECB's governing council had discussed a rate cut but "the prevailing consensus was to leave rates unchanged," raising the prospect that rate cuts will be discussed in future council meetings if the economy remains mired in recession and inflation is below the ECB's target.
     Draghi remained cautiously optimistic that the euro area's struggling economy should start to recover later this year on the back of stronger global demand, despite a downward revision in economic forecasts by the ECB staff.
    The ECB's latest forecasts calls for average real Gross Domestic Product growth in the 17 nations that share the euro of between -0.9 and -0.1 percent in 2013 and between 0.0 and 2.0 percent  in 2014. 
    In the fourth quarter of 2012, the euro zone GDP shrank by 0.6 percent, the fifth quarterly contraction in a row, for an annual drop of 0.9 percent.

    The ECB cut its benchmark refinancing rate by 25 basis points to 0.75 percent in 2012.
    Although euro area inflation has declined below the ECB's target and is expected to remain contained, Draghi only said this would "allow our monetary policy stance to remain accommodative."
    Some economists had speculated that the decline in inflation to under 2.0 percent would allow the ECB to start thinking of cutting rates. The ECB targets inflation of below, but close to 2 percent.
   In February the euro area inflation rate fell to 1.8 percent from January's 2.0 percent and the latest ECB staff forecast calls for inflation of 1.2-2.0 percent this year and between 0.6 and 2.0 percent in 2014.
    "In order to support confidence, it is essential for governments to continue implementing structural reforms, to build further on the progress made in fiscal consolidation, and to proceed with financial sector restructuring," Draghi said, basically saying the ECB has done its part to boost growth and now it is up to governments to do their part.


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