The European Central Bank left rates unchanged and reaffirmed the need for full implementation of its quantitative easing program.
The key refinancing rate was unchanged at 0.05% and the deposit rate at minus 0.2%. The press conference by ECB Chief Mario Draghi caused the euro to power through the $1.12 handle as European bond yields rose. Draghi’s introductory statement to the press conference noted that the “asset purchase programmes are proceeding well”. The Governing Council reaffirmed that it would “look through fluctuations in measured inflation”, in either direction, as long as they are judged to be temporary.
Draghi reaffirmed the ECB’s view that the ECB will likely continue to deliver a sizeable amount of monetary policy support to the Eurozone until September 2016.
The ECB President also spoke about Eurozone inflation (consumer prices) and raised forecasts for 2015 by 0.3pp to 0.3% but neither the 2016 (1.5%) nor the 2017 (1.8%) mid-points for inflation (HICP) were adjusted. The ECB’s policy target is for annual inflation near but just below 2%.
Mr. Draghi acknowledged that there had been some reversal in financial market conditions, and suggested that one should get used to periods of higher volatility.
On growth, the ECB Governing Council made no major changes to its economic forecasts, leaving the outlook for 2015 GDP growth at 1.5% and 1.9% in 2016. 2017 growth was cut back to 2% from 2.1%. Monetary and economic data underscore the need to maintain the ECB’s policy course, Draghi said.
The euro had its biggest two-day rally since 2009 and hit a high of $1.1285 on Wednesday.
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