Draghi hails 'solid' growth as European Central Bank keeps policy on hold

27 April, 2018, 00:54 | Author: Teresa Adams
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"Overall, however, growth is expected to remain solid and broad-based", he told a news conference after European Central Bank policymakers held their meeting.

Later in the press conference, Draghi said they have an unchanged confidence about reaching the 2 percent inflation target.

Draghi did mention risks from protectionism.

Past year was the strongest in a decade for economic growth in the euro zone, but a recent slump in investor sentiment since the start of 2018 could threaten the ECB's inflation outlook.

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Investors are tuning in to the ECB's latest policy decision this morning, as well as updates to the bank's quantitative easing plans and a press conference from Mario Draghi. The ECB stated that it would keep its asset purchase programme in place until at least September, and would continue it on further if necessary.

Business confidence in the 19-country bloc has already taken a knock, most notably in export-focused Germany.

If growth slows significantly, the central bank could face pressure to extend its 30 billion euros ($36 billion) in bond purchases. The Pound to Euro (GBP/EUR) exchange rate is now trending at levels of 1.1497.

Economists polled by Reuters still expect bond purchases to end this year after a short taper and see the first rate hike in the second quarter of 2019, but some have started to flag risks of a delay.

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Only two more meetings remain before September.

The ECB's interest rate on its main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at zero, 0.25 and -0.40 percent respectively.

A key worry is that protectionist rhetoric from the U.S. could push down the value of the dollar, an economic anomaly as the Federal Reserve is likely to raise interest rates several times this year, a natural support for the United States currency. This, in turn, could have ramifications for the ECB's sole policy objective of ensuring price growth returns to its near 2 percent target.

Even if the currency impact were to bite, the European Central Bank has little scope to extend purchases much longer, suggesting it will take an extremely cautious approach to normalising policy, even if it risks erring on the side of caution and moving too late.

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