Eurozone growth at 2-year high but European Central Bank set to hold fire

Posted June 09, 2017

While the European Central Bank is widely expected to keep policy unchanged on Thursday, including its 2.3 trillion euro ($2.59 trillion) bond-buying programme and sub-zero interest rates, sources told Reuters it will acknowledge the improved economic outlook by removing a reference to "downside risks" in its statement.

Eurostat, the European Union's statistics agency, said Thursday that economic growth across the region was a quarterly 0.6 percent in the January to March period, 0.1 percentage point up on the previous estimate. In the year to May, inflation slowed to an annual rate of 1.4 percent.

The bank's adjusted statement represents a cautious step toward an announcement, expected later this year, that the bank will taper and end its extraordinary monetary stimulus as growth and inflation improve. The measure pumps newly printed money into the economy in an effort to raise inflation toward the bank's goal of just under 2 percent considered best for the economy.

Ending the bond purchases and raising interest rates could have wide-ranging effects, such as a stronger euro and higher interest costs for heavily indebted governments.

Draghi conceded that recent data suggest "a stronger momentum in the euro area economy, which is projected to expand at a somewhat faster pace than previously expected".

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"Nothing substantial has happened to inflation except the price of oil and the price of food. underlying inflation has remained the same year to year", he noted. Granted, the official jobless rate is close to its lowest level in eight years, but employment hasn't yet reached its pre-crisis peak and many people work fewer hours than they would like. Forty-four members of the European Parliament from across the EU have signed a letter to Mr Draghi calling on the region's central bankers to release more information on their holdings of around €75 billion-worth of corporate debt. At the bank's last meeting in April, Draghi said risks were "tilted to the downside". "More jobs than anywhere else in the world, I think, certainly more than in the United States".

The June meeting will coincide with new forecasts for growth and inflation from the eurozone's central banks. The ECB doesn't expect a big increase in inflation over the coming two years.

The interest rate for the main refinancing operations was kept at 0.0%, alongside a rate of 0.25% on the marginal lending facility while the deposit rate was unchanged at -0.40%.

The ECB held Thursday's policy meeting in Tallinn, Estonia, one of the occasional meetings held away from the bank's Frankfurt headquarters.

Pan Pylas reported from London.