The central bank for the 19 European countries that share the euro currency maintained its ultra-easy monetary policy, as widely expected, but raised its forecasts for economic growth and inflation and said the risks surrounding the growth outlook had become less pronounced though they still remain tilted to the downside, mainly due to global factors.
Despite the more optimistic outlook, the European Central Bank (ECB) repeated its guidance that "a very substantial degree of monetary accommodation is still needed for underlying inflation pressures to build up" and is ready to increase either the size of asset purchases or the duration of these if the outlook were to deteriorate.
But in recognition of the slightly improved outlook for inflation, the ECB tweaked its guidance by omitting a reference from its January statement that it "will act by using all the instruments available within its mandate" if warranted to reach its inflation objective.
In December 2016 the ECB's governing council decided to trim its monthly asset purchases to 60 billion euros from the beginning of April from 80 billion until the end of this year or beyond, if necessary, to ensure the path of inflation is consistent with its target of inflation just below, but close to 2 percent.
The ECB also left its benchmark refinancing rate at zero percent, unchanged since March 2016, and the deposit rate at minus 0.40 percent, with ECB President Mario Draghi reiterating that the rates are expected to "remain at present of lower levels for an extended period of time, and well past the horizon of the net asset purchases."
Economic growth in the euro area was steady at a quarterly rate of 0.4 in the third and fourth quarters of last year but Draghi said the latests surveys "increase our confidence that the ongoing economic expansion will continue to firm and broaden" with a recovery in investment helped by the very easy financing conditions and rising employment supporting private consumption.
"Also, there are signs of a somewhat stronger global recovery and increasing global trade," Draghi said.
In an update to its economic projections, the ECB raised its forecast for growth for this year to 1.8 percent from December's forecast of 1.7 percent and the 2018 forecast to 1.7 percent from 1.6 percent. The forecast for 2019 was unchanged at 1.6 percent.
Headline inflation has also been accelerating in recent months to hit 2.0 percent in February, up from 1.8 percent in January, but Draghi said underlying inflationary pressure remain subdued, with no signs of a convincing upward trend in inflation as the rise is due to higher energy and food prices.
"The Governing Council will continue to look through changers in HICP inflation if judged to be transient and to have no implication for the medium-term outlook for price stability," Draghi said.
The core inflation rate in February was unchanged at 0.90 percent for the third month in a row and Draghi expects headline inflation to remain close to 2 percent in coming months.
But the ECB also raised its headline inflation forecast to 1.7 percent for this year, up from the previous forecast of 1.3 percent, and the 2018 forecast to 1.6 percent from 1.5 percent. For 2019 the forecast was unchanged at 1.7 percent, still below the ECB's target.
The European Central Bank released the following statement with its monetary policy decision followed by an introductory statement by its president, Mario Draghi: