Published: Fri, June 09, 2017
Markets | By Noel Gibbs

European Central Bank hints at end to ultra-easy monetary policy

European Central Bank hints at end to ultra-easy monetary policy

The European Central Bank closed the door on more interest rate cuts on Thursday, judging the euro zone economy to be rebounding, but said inflation looks to remain weak for years so it still needs to pump out the cash.The currency bloc has been on its best economic run since the global financial crisis almost a decade with millions of jobs created since the ECB's stimulus effort started. That language was altered to remove a previous reference to rates remaining at present "or lower levels for an extended period of time".

Indeed, the European Central Bank bumped its projections for euro area GDP growth in 2017, 2018 and 2019 by one tenth of a percentage point in comparison to the projections it made in March, to 1.9%, 1.8% and 1.7%, respectively.

The bank's president, Mario Draghi, was careful not to give a clear signal about when it will start withdrawing stimulus - a measure of the bank's caution about the potential impact such an announcement could have on financial markets.

As such, most economists think Mario Draghi, the ECB's president, will acknowledge the improved growth but hold off from announcing any change to the bank's array of stimulus programs. Equally, the European Central Bank did, as reported yesterday, raise growth and lower inflation forecasts but put the latter down to oil price movements.

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"The economic expansion [seen in the eurozone so far in 2017] has yet to translate into stronger inflation dynamics", Draghi said during a set of prepared remarks.

The bank left its bond purchase stimulus program unchanged at 60 billion euros ($67 billion) per month through at least the end of the year and longer if necessary.

The euro weakened 0.5 percent to trade at $1.1201 as of 4:14 Frankfurt. The ECB chief said nothing had substantially changed with regards to the outlook for underlying inflation, adding that the path remains low and flat.

However, Draghi notes the risk assessment of growth is now broadly balanced, as opposed to being biased to the downside.

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The emphasis the European Central Bank puts on its role implies that it believes growth isn't yet strong enough for it to start dialing back on the bond-buying stimulus program it has been running since March 2015.

Strength in the U.S. dollar weighed on the precious metal as the U.S. Dollar Index went up 0.3 percent to 96.98 as of 1830 GMT.

Earlier on Thursday, the Eurostat statistics agency said the eurozone economy had grown at its fastest rate in a year during the January-to-March quarter. The annual rate of 1.4 per cent remains below the ECB's goal of just under 2 per cent considered consistent with a strong economy. And they drive down longer-term interest rates, making it cheaper for governments and businesses to borrow and spend.

The more important driver for the market, di Galoma said, was the expected rate hike by the Federal Reserve next week as well as US long-dated Treasury debt auctions. We continue to project an uptick in the pair in 6-12M targeting 1.16 in one year's time.

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Thursday's ECB remarks also had some impact on the market, with USA yields initially falling, in line with the decline in German bond yields immediately following the bank's comments, before eventually rising. However Draghi said there were no visible divisions at the Governing Council's meeting.

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