ECB's Draghi prepared to increase QE

Gladys Abbott
June 9, 2017

2017 inflation is cut to 1.5% from 1.7% previously, 2018 inflation at 1.3% vs 1.6% and 2019 inflation is seen at 1.6%.

Those estimates undershoot of the bank's inflation target - close to, but below 2% - and are one of the reasons why the ECB sees the need to keep asset purchase levels so high and rates so low.

"Currently the European Central Bank sees the risks tilted to the downside but if they upgrade the assessment and describe them as broadly balanced, we could see a sharp rally in the Euro". Growth forecasts have been upgraded and tail risks have disappeared. The ECB said it now saw inflation this year at just 1.5 percent, down from a previous forecast of 1.7 percent.

Aberdeen Asset Management Senior Investment Manager Patrick O'Donnell said:"The ECB is essentially in a holding pattern, waiting for more positive inflation data to come in". The latest opinion polls have a conservative lead of between 1 percent and 12 percent, which rather clearly demonstrates the problems of relying on United Kingdom opinion polls.

Draghi said at a news conference Thursday that risks to growth are now "broadly balanced".

"There's no appetite to risk choking off the growth that the economy has been seeing of late. Doing nothing is probably the right decision at the moment". With the decision, the ECB's deposit rate, its key policy tool, remains at -0.4 percent.

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USA interest rates futures dipped on Thursday amid concerns over how soon the Bank of Japan and European Central Bank may decide to scale back massive stimulus programs aimed at supporting their economies.

However, he added that growth prospects were being dampened by "a sluggish pace of implementation of structural reforms". While few expect that to happen, the words underline that the bank is not yet willing to call time on the stimulus program.

On the other hand, European Central Bank bumped up its growth estimates for Europe and removed a reference in its policy statement on further interest rate cuts.

European Central Bank head Mario Draghi says inflation indicators "have yet to show convincing signs of a pickup".

It also confirmed that it would continue with its €60bn per month asset purchase programme until at least the end of 2017 - and maintained the pledge to expand it if conditions deteriorate. "The pass-through of our monetary policy has never been so effective as it is today".

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