The European Central Bank (ECB) left its key policy rates and monthly asset purchases unchanged, as widely expected, but underlined that it would "act by using all the instruments available within its mandate" if uncertainties surrounding Britain's exit from the European Union (EU) threaten the pass-through of its accommodative monetary policy to the real economy.
The ECB, which in March cut its benchmark refinancing rate to zero percent and boosted its monthly asset purchases by 20 billion euros to 80 billion, added that euro area financial markets had "weathered the spike in uncertainty and volatility with encouraging resilience" following the UK vote to leave the EU due to the readiness of central banks to provide liquidity if needed.
ECB President Mario Draghi said the highly supportive financing conditions were still helping support credit creation and the ECB's baseline scenario of an ongoing economic recovery and an increase in inflation.
Over coming months, armed with more information and new staff forecasts, Draghi said the ECB governing council would be in a better position to assess the risks to inflation and growth.
Draghi admitted that the risks to euro area growth remain tilted to the downside due to the outcome of the UK referendum and other geopolitical uncertainties, subdued growth in emerging markets, balance sheet adjustments in a number of sectors and sluggish implementation of structural reforms.
In addition to maintaining key interest rates, Draghi confirmed the ECB's guidance that it intends to keep rates "at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases." He also confirmed that the current asset purchase program was intended to run until the end of March 2017, or beyond if necessary.
The gross domestic product of the 19 countries in the euro area expanded by an annual 1.7 percent in the first quarter of this year, unchanged from the fourth quarter of 2015, supported by domestic demand, and recent data point to "ongoing growth in the second quarter of 2016, though at a lower rate than in the first quarter," Draghi said.
In June 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.
Euro area inflation improved to 0.1 percent in June, up from minus 0.1 percent in May, due to higher energy and services prices, but Draghi still expects inflation to remain very low in coming months before picking up in late 2016 and following years.
The ECB staff forecasts 2016 average inflation of 0.2 percent before rising to 1.3 percent and 1.6 percent in the following two years. This is still well-below the ECB target for inflation to be below, but close to 2 percent.
The European Central Bank issued the following statement by its president, Mario Draghi: