The European Central Bank (ECB) left its key policy rates steady, as widely expected, and confirmed its guidance that it expects rates "to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases."
In March the ECB launched an aggressive package of stimulus measures that included a cut in its benchmark refinancing rate by 5 basis points to zero percent and the deposit rate by 10 points to minus 0.40 percent. Monthly asset purchases were boosted by 20 billion euros to 80 billion and the type of securities that it would purchase was widened to include bonds issued by non-banks.
As of June 8, the ECB will begin purchasing such corporate assets and on June 22 it will start the first of its longer-term refinancing operations
In his statement, ECB President Mario Draghi confirmed that asset purchases would run until the end of March 2017, or beyond if necessary to boost inflation, which remains far below the ECB's target of below, but close to 2 percent. The last time inflation hit 2 percent was January 2013.
The flash estimate from Eurostat, the European Union's statistics agency, showed that consumer prices in the 19-nation euro area fell by 0.1 percent in May, slightly better than the 0.2 percent decline seen in April. But excluding energy, inflation was up 0.8 percent, up from 0.7 percent in April.
The ECB expects inflation to remain very low or negative in the next few months before picking up in the second half of this year and then recovering further in 2017 and 2018.
In its latest forecast, ECB staff revised upwards its forecast for inflation this year to average 0.2 percent, up from the March forecast of 0.1 percent, but for 2017 and 2018 the forecast was unchanged at 1.3 percent and 1.6 percent, respectively.
But although Draghi said the economic recovery in the euro area was "gradually proceeding," he added that risks to growth remain titled to the downside due to developments in the global economy, the upcoming British referendum on EU membership and other geopolitical risks.
He underscored his concern that very low inflation does not become entrenched and said the ECB would "act by using all the instruments available within its mandate" if warranted to reach its inflation objective.
There are signs that the euro area's economy is expanding, with Gross Domestic Product in the first quarter of this year up by 0.5 percent from 0.3 percent in the fourth quarter, for annual growth of 1.5 percent, just below the 1.6 percent increase seen in the previous three quarters.
Growth in the euro is being supported by domestic demand while exports remain weak and Draghi said the latest data show that growth may be lower in the second quarter.
The ECB revised upwards its 2016 growth forecast to 1.6 percent from the previous forecast of 1.4 percent but kept the 2017 forecast unchanged at 1.7 percent. For 2018 growth is seen unchanged at 1.7 percent, slightly below the March forecast of 1.8 percent.
The European Central Bank released the following statement by its president, Mario Draghi: