ECB Chief Optimistic On Eurozone Growth Despite Softer Economy

27 April, 2018, 00:42 | Author: Natasha Holloway
  • ECB mulls shelving rules tackling euro zone's bad loans

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.

The accompanying press conference with ECB President Mario Draghi's did little to negate this fall, but he did notably brush off the recent poor data pulses experienced by the bloc this month.

"This moderation may in part reflect a fall back from the high pace of growth observed at the end of past year, while temporary factors may also be at work".

"Following several quarters of higher than expected growth, incoming information since our meeting in early March points towards some moderation while remaining consistent with a solid and broad based expansion of the euro area economy", Mr Draghi told reporters in Frankfurt.

The real risks to the 19-member eurozone's outlook were global, Draghi said, with the European Central Bank president singling out trade tensions stemming from Trump's "America First" protectionist drive.

The admission prompted a German journalist in the audience to question the president on "why monetary policy had not been discussed.in a monetary policy meeting", to which Draghi said that the European Central Bank first required a better understanding of the underlying trends since the start of the new year before formulating future policy.

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Reuters reported on Monday that the ECB was considering shelving planned rules that would have forced banks to set aside more money against their stock of bad loans, after criticism from lawmakers, bankers and even from within the institution.

Policymakers will need to agree an end-date for the ECB's €2.55 trillion bond purchase programme, which has cut borrowing costs and kick-started growth, even if it has failed to lift inflation back to target. Weather, strikes, the timing of Easter and more factors are behind this moderation. The main refinancing rate will stay at 0.00 percent.

"Over the coming months we'll see a reduction in bond buying and it's likely that interest rates will remain unchanged until the end of the year as Draghi takes the time to wait and see how growth picks up".

He said it could be that the exceptionally strong growth of a year ago is returning to a more normal pace and that the bank would have to study incoming data more. It is up around 1.5 percent against the USA dollar so far this year and was trading at $1.2155 shortly after 1 p.m. London time.

Nonetheless, the euro's recent strength has had a relatively limited impact in recent weeks. The currency is up 1.5 percent against the dollar this year and just 0.3 percent higher on a trade-weighted basis.

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