Thursday, August 1, 2013

ECB still sees current or lower rates for extended period

    The European Central Bank (ECB), which earlier today kept its benchmark refinancing rate steady at 0.50 percent, said its "monetary policy stance will remain accommodative for as long as necessary" and it "expects the key ECB interest rates to remain at present or lower levels for an extended period of time."
    The policy outlook by ECB President Mario Draghi is the same as last month, when the bank for the first time in its history gave financial markets guidance to its expected policy stance.
    Draghi said the policy outlook was based on continued subdued outlook for inflation given the broad-based economic weakness, including weak credit.
    "At the same time, recent confidence indicators based on survey data have shown some further improvement from low levels and tentatively confirm the expectation of a stabilisation in economic activity," Draghi said, adding the bank still expects a gradual economic recovery in the rest of this year and into 2014.
    The economy of the 17-nation euro zone contracted by 0.3 percent in the first quarter, the sixth consecutive quarterly contraction. Compared with the first quarter of 2012, Gross Domestic Product shrank by 1.1 percent.
    The ECB expects the euro zone economy to shrink by 0.6 percent this year, less than the 1.5 percent fall in 2012 and last cut its refinancing rate by 25 basis points in May.

    Draghi said he expects exports to benefit from a gradual recovery in global demand during the rest of this year and into 2014 while domestic demand is supported by the bank's accommodative policy and gains in real income due to generally lower inflation.
    In July the euro zone inflation rate was steady at 1.6 percent from June, and Draghi said he expects a temporary fall in coming months due to base effects from energy prices last year.
    But medium to long-term inflation expectations remain anchored in line with the ECB's aim for price stability. The ECB targets inflation of below, but close to 2.0 percent.
    Despite some improvement in financial markets since last summer that are working their way through the economy, Draghi said the risks surrounding the outlook remain on the downside.
    "Recent developments in global money and financial market conditions and related uncertainties may have the potential to negatively affect economic conditions," Draghi said, adding that weaker than expected global demand and insufficient structural reforms also pose risks.


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