European Central Bank keeps policy, guidance unchanged as expected

Headline euro zone inflation has essentially hit the ECB’s target level of close to 2 percent and the overall economy is relatively stable.

THE European Central Bank pledged yesterday to keep its aggressive stimulus policy at least until the end of the year, arguing that inflation pressures in the eurozone remained weak despite expectations of faster price growth. And that will worry a central bank that’s not convinced that the rise in inflation and the general recovery is durable.

“With interest rates unlikely to be increased before the end of 2018, a stark policy divergence with the US Federal Reserve should see the euro fall further against the dollar”.

As Draghi pointed out in his introductory statement to the press conference, the HICP inflation in the euro area increased further to 2.0 percent in February, up from 1.8 percent in January 2017 and 1.1 percent in December 2016.

As investors expected, the European Central Bank made a decision to leave Eurozone monetary policy frozen in its March meeting.

President Mario Draghi smiles to cameras during a press conference at the European Central Bank headquarters in Frankfurt, Germany, March 9, 2017.

The bank is now committed to continuing its bond-buying programme until at least December, although the €80bn-a-month quantitative easing (QE) scheme will be trimmed to €60bn a month from April. Supermarket chain WM Morrison Supermarkets led all decliners, shedding 6.6%.

After years of extraordinary stimulus to combat economic distress and the threat of deflation, a steadily improving recovery is finally giving monetary officials room to consider normalizing policy. The rate remains stuck below 1 percent, but what’s worse is that the trend has consistently pointed down in the euro’s 18-year history, suggesting structural weaknesses may be at play. These less dovish comments from Draghi encouraged traders to take profits on their short euro positions and while dollar bulls and euro bulls will need to battle it out, the euro should outperform other currencies. This brings core inflation to 1.8 percent in 2019, an outturn that is probably in line with the ECB’s definition of price stability.

According to payroll processor ADP, the U.S. private sector added 298,000 jobs in February, the most since April 2014 and the third-best showing for jobs creation during the current economic recovery.

It’s a similarly unsteady period for the pound against the United States dollar, which has hovered around US$1.216 for much of the morning. Eurozone Gross Domestic Product (GDP) is predicted to come in at 1.8% and was previously projected to be 1.7%.