Fundamental Comment

Draghi: ECB downgrades inflation forecast, warns of trade protectionism

634

European Central bank President Mario Draghi started his conference by confirming the central bank will hold interest rates at the current levels for an extended period of time. 

Draghi stressed the ECB will hold its monthly bond purchases programme until September this year or beyond if necessary, and until the Governing Council sees a sustained adjustment in the path of inflation towards its inflation target.

The euro area economy will expand at a faster pace than earlier expected, raising growth estimates to 2.4 percent this year from 2.3 percent forecast in December. In 2019 and 2020, the economy will expand 1.9 percent and 1.7 percent, unchanged from previous anticipations.

He warned that trade protectionism would hurt euro area recovery, referring to the planned import tariffs on steel and aluminum announced by U.S. President Donald Trump.

Regarding inflation forecasts, the ECB revised down its estimates to 1.4 percent in 2019 from previous forecasts of 1.5 percent. The central bank kept 2018 and 2020 estimates at 1.7 percent and 1.4 percent respectively.

Finally, Draghi ended his statement by calling for the implementation of structural reforms in euro area countries to be substantially stepped up.

Questions

When asked about the reason behind changing the language of the ECB statement, referring to the drop of the promise to expand the stimulus size if needed, he answered that the pledge had been added to the ECB’s monthly statement back in 2016, when the situation was very different.

But he highlighted that the ECB has left its other vow to the ECB has kept its other vow ‘to run its asset purchases until September 2018 ‘or beyond, if necessary.’

In response to other question, Draghi said the ECB cannot declare victory over inflation.

Concerning trade war fears, Draghi said “we are convinced that disputes should be discussed and resolved in a multilateral framework … Unilateral decisions are dangerous.”

“If you put tariffs against your allies, one wonders who the enemies are,” he added.

Share Artical