June ECB meeting: Slightly less accommodative forward guidance

Banking, European Union, Finance, Politics and Government, Reports, Shipfinance — By on June 9, 2017 at 4:27 PM

Mario Draghi

Global Economic & Market Outlook – Focus Notes (Friday, June 9, 2017)

June ECB meeting: Slightly less accommodative forward guidance

  • At its regular monetary policy meeting on Thursday 8 June, the ECB Governing Council kept key policy interest rates unchanged and its asset purchase programme of EUR60bn intact until December 2017 (or beyond if necessary), as widely expected. Nevertheless, the ECB adopted a slightly less accommodative forward guidance, removing the reference to “lower levels”, expecting interest rates to “remain at present” levels for an extended period of time. According to ECB President Mario Draghi, the removal of the easing bias on interest rates was largely attributed to disappearing deflationary risks.
  • The reduced deflation risk was accompanied by improved prospects for the euro area economy. The ECB characterized the risks to the economic outlook as broadly “balanced” instead of “downward” previously, revealing a slightly more optimistic assessment on the growth outlook. In more detail, euro area GDP growth projection was upwardly revised by 0.1pp in 2017, 2018 and 2019 to 1.9%, 1.8% and 1.7%, respectively. However, President Mario Draghi emphasized that the economic expansion needs to feed through to prices, with the ECB lowering its inflation projections throughout the entire forecast horizon on the back of sharper-thanexpected appreciation of the trade weighted value of the euro and lower energy prices. HICP inflation was downgraded by 0.2pp in 2017, 0.3pp in 2018 and 0.1pp in 2019 to 1.5%, 1.3% and 1.6%, respectively, while core inflation was also revised to the downside by 0.1pp for 2018 and 2019 to 1.4% and 1.7%, respectively, suggesting a slightly slower improvement for underlying inflationary pressures.

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