Fundamental Comment

ECB raises growth, inflation forecasts despite glob al headwinds

ECB raises growth forecasts despite global headwinds

After holding interest rates at their record low and making a surprise change in forward guidance, ECB President Mario Draghi started his press conference by highlighting the risks stemming from global headwinds.

Despite better than expected Q1 data recent info indicates global headwinds continue to weigh on euro area, Draghi said.

However, “positive contribution of negative rates is not undermined by side effects," ECB Draghi said.

Geopolitics, protectionism, emerging markets leaving mark on sentiment, yet the ECB is determined to act in case of adverse contingencies.

Members raised possibility of rate cuts, APP restart, and further extension in forward guidance.

TLTRO is designed to minimize possibility of carry trade, Draghi hinted.

ECB raises growth and inflation forecasts

Compared to March’s outlook, the ECB opted to raise both growth and inflation forecasts, as employment gains and rising wages underpin domestic economy, inflation pressures.

Now, the ECB predicts the euro area to growth by 1.2 percent this year, up from 1.1 percent in March. But, the central bank downgraded growth estimates for both 2020 and 2021 to 1.4 percent from 1.6 percent and 1.5 percent respectively.

As for inflation, it will average 1.3 percent this year, up from 1.2 percent, and will rise further to 1.4 percent in 2020 then 1.6 percent in 2021.

“Looking ahead underlying inflation is expected to increase over the medium term supported by our monetary policy measures, the ongoing economic expansion and stronger wage growth,” Draghi said.

ECB will continue to monitor bank-based transmission, case for mitigating measures, while Italian government's debt reduction plan has to be credible.

As of 13:27 GMT, the euro snapped some of its gains to $1.1273 after hitting a session peak at $1.1308.

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