The ECB left its benchmark refinancing rate on hold at 0.0% on June 2nd 2016 as widely expected. Both the deposit rate and the lending rate were also left steady at -0.4 percent and 0.25 percent respectively and the central bank confirmed it will start buying corporate bonds on June 8. Policymakers reinforced that rates are expected to stay at present or lower levels for an extended period of time and raised growth and inflation forecasts for this year although warned Q2 2016 growth may be slower than anticipated.
The ECB expects the Euro Area economy to expand at a faster 1.6 percent in 2016, up from 1.4 percent in the previous forecasts. For 2017, expectations were left unchanged at 1.7 percent and were lowered by 0.1 percent to 1.7 percent in 2018. Inflation outlook was also raised to 0.2 percent from 0.1 percent in 2016 and was left on hold at 1.3 percent for 2017 and 1.6 percent for 2018.
Excerpts from the Introductory statement to the press conference by Mario Draghi:
Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases. Regarding non-standard monetary policy measures, we confirm that the monthly asset purchases of €80 billion are intended to run until the end of March 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. As a next step, on 8 June we will start making purchases under our corporate sector purchase programme (CSPP). Moreover, starting on 22 June, we will conduct the first operation in our new series of targeted longer-term refinancing operations. Further information on implementation aspects of the CSPP will be released after the press conference on the ECB’s website.
Growth continues to be supported by domestic demand, while being dampened by weak exports. The latest data point to ongoing growth in the second quarter, though possibly at a lower rate than in the first quarter. Looking ahead, we expect the economic recovery to proceed at a moderate but steady pace.
The risks to the euro area growth outlook remain tilted to the downside, but the balance of risks has improved on the back of the monetary policy measures taken and the stimulus still in the pipeline. Downside risks continue to relate to developments in the global economy, to the upcoming British referendum and to other geopolitical risks.
Looking ahead, on the basis of current futures prices for oil, inflation rates are likely to remain very low or negative in the next few months before picking up in the second half of 2016, in large part owing to base effects in the annual rate of change of energy prices. Supported by our monetary policy measures and the expected economic recovery, inflation rates should recover further in 2017 and 2018.
6/2/2016 2:02:46 PM