Friday Jul 25, 2014 Search
Weather | Athens
32o C
23o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
ECB keeps rates unchanged as policy makers discuss new measures

The European Central Bank kept interest rates unchanged even after inflation in the euro area weakened to the slowest pace in more than four years.

The 24-member Governing Council left the main refinancing rate at a record low of 0.25 percent after policy makers met in Frankfurt on Thursday. This decision was forecast by 54 of 57 economists in a Bloomberg News survey, with three expecting a cut. The deposit rate was left unchanged at zero and the marginal lending rate at 0.75 percent.

Policy makers refrained from acting amid conflicting signals that show the 18-nation economy is gradually recovering while unemployment remains near a record high and companies are struggling to raise prices. ECB President Mario Draghi is expected to use his monthly press conference at 2:30 p.m. local time to showcase the measures he still has available, including quantitative easing that Bundesbank President Jens Weidmann endorsed last week as a tool to prevent Japan-style deflation.

“We expect Draghi to use his bully pulpit to send a clear dovish message today,” said Richard Barwell, senior European economist at Royal Bank of Scotland Group Plc in London. Draghi’s goal is to nudge “market beliefs about the council’s game plan, its sensitivity to the currency and its appetite for unconventional action,” he said.

Euro-area inflation slowed to 0.5 percent in March, the lowest level since November 2009. Spain, the region’s fourth- largest economy, saw annual prices decline for the first time since 2009. Draghi is likely to reiterate that inflation will gradually rise and that short-term price weakness can be explained by weaker food and energy costs and seasonal distortions such as the timing of the Easter holidays.

ECB Vice President Vitor Constancio said on April 1 in Athens that he expects “the low figure in March will be corrected to a high figure in April” and the central bank sees no prospect of deflation. Policy makers define their mandate for stable prices as keeping inflation just under 2 percent. ECB staff projections show the rate climbing to 1.5 percent in 2016 from 1 percent this year.

Christine Lagarde, the International Monetary Fund’s managing director, said in Washington on Wednesday that the euro area needs more monetary easing, including unconventional measures. She said the region must counter the risk of so-called “lowflation,” or a prolonged period of ultra-low inflation.

As well as QE and a negative deposit rate, the ECB could offer new long-term loans to banks, bolster the market for asset-backed securities, or stop the absorption of liquidity from bond purchases under its now-defunct Securities Markets Program.

Weidmann’s stance on QE shows a consensus that hasn’t always been easy to reach. The Bundesbank head criticized Draghi’s September 2012 pledge to buy the bonds of stressed countries if their governments commit to reforms, and was among a minority of Governing Council members who opposed a surprise rate cut in November last year.

At the same time, economic data support the ECB’s outlook for a gradual recovery in the euro area. Economic confidence is the strongest since July 2011, and lending to companies and households rose month-on-month in February for the first time since July 2012.

The central bank predicts gross domestic product will expand 1.2 percent this year, accelerating to 1.8 percent in 2016. The currency bloc’s economy grew 0.2 percent in the fourth quarter of last year, less than an initial estimate, data from the European Union’s statistics office showed Wednesday.

International investors are returning to the region, including to nations that received bailouts in the depths of the crisis. The premium investors demand to hold Spanish 10-year bonds over German debt was less than 1.7 percentage points today, compared with a euro-era high of more than 6 percentage points in July 2012. U.S. exchange-traded funds show net inflows of $106 million in Greece this year, an increase of 80 percent.

The improved outlook has contributed to a stronger euro, to the extent that it threatens to curb inflation and hurt the competitiveness of exporters in the region. The single currency has gained more than 7 percent against the dollar in the past 12 months and while the ECB doesn’t have a policy target for the exchange rate, Draghi said on March 25 that he’s watching the level “with attention.”

The ECB president has repeatedly tried to counter unwarranted optimism. At the March 6 meeting, he strengthened his guidance by citing slack in the economy as a reason why official rates will stay at or below current levels even after the economy shows signs of improvement.

The output gap was employed as a guidance tool only three weeks earlier by Bank of England Governor Mark Carney. Federal Reserve Chair Janet Yellen said on March 31 that “considerable slack” remains in the U.S. economy as she argued that the country will need stimulus for some time.

While the ECB hasn’t released its own measurement of spare capacity, there are multiple other estimates. The International Monetary Fund predicts euro-area GDP in 2014 will be 2.5 percent below its potential, and the shortfall will gradually narrow to 0.4 percent in 2018. The European Commission sees the gap at 2.4 percent this year, shrinking to 1.3 percent in 2015.

“Slack will continue to curb inflationary pressures,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “This will keep the possibility of further monetary policy easing very much alive.”

[Bloomberg]

ekathimerini.com , Thursday April 3, 2014 (15:25)  
Lenders highlight Cypriot bad loans
More than 15 applicants for Cyprus Airways
Greece´s PPC OKs 180-mln-euro investment for wind projects
Optimism sees stock index climb over 1,200 pts
University rectors voice concerns over further budget cuts
University authorities warned on Friday that their institutions would not be in a position to fulfill their role after the Education Ministry demanded that they make further cuts to their bu...
Aghan worker claims police intimidation after he demanded backpay
Two police officers have been suspended following a complaint by a 30-year-old Afghan national that he was brutalized after demanding that his employer in Anavryta, eastern Attica, pay him 2...
Inside News
SOCCER
Ranieri says he has little to change in Greek national team
The Hellenic Football Federation (EPO) presented Claudio Ranieri as the new Greece coach for the next couple of years, after the Italian manager signed his contract in Athens on Friday. “I l...
SOCCER
Olympiakos downs AC Milan 3-0 in friendly
Greek champion Olympiakos defeated Italy's AC Milan 3-0 late on Thursday in a friendly match that launched the International Champions Cup in Canada and the US. The result, with goals from A...
Inside Sports
TALK
What lessons can we draw from antiquity?
Our theme is limits. And we are gathered here at this limit of Europe, close the to sea: the limitless, the boundless. And we face all sorts of limits. There are the limits of knowledge – fa...
COMMENTARY
Forty years of shortsighted party policies
It is 40 years since the restoration of democracy, and the two main parties which were established in 1974 and determined the country’s fate since then are unable to act their age. For decad...
Inside Comment
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
 RECENT NEWS
1. Lenders highlight Cypriot bad loans
2. More than 15 applicants for Cyprus Airways
3. Greece´s PPC OKs 180-mln-euro investment for wind projects
4. Optimism sees stock index climb over 1,200 pts
5. University rectors voice concerns over further budget cuts
6. Aghan worker claims police intimidation after he demanded backpay
more news
Today
This Week
1. Greek coast guard picks up 77 migrants off Myconos
2. Draghi safety net becoming blindfold as bonds soar
3. Aegean Airlines resumes flights to Tel Aviv
4. Police report points to less crime in 2014
5. Godfather, 35, shot at Karditsa christening dies
6. Thousands of dead fish surface in Lake Pamvotis
Today
This Week
1. Greece seen in third bailout as bonds not enough, economists say
2. Climber dies in Mount Olympus fall
3. Greek sovereign debt at 174.1 percent of GDP in first quarter
4. Unequal after death
5. Greek banks able to tap investors after stress tests, HFSF Says
6. Hedge fund Dromeus turns Greek tragedy to triumph with 160 pct gain
   Find us ...
  ... on
Twitter
     ... on Facebook   
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright © 2014, H KAΘHMEPINH All Rights Reserved.