ECB rates flat, raises growth view
Print Edition
The European Central Bank kept its interest rates unchanged yesterday and raised its growth forecasts as it acknowledged that the recovery is strengthening.
After the decision to keep the key rate at a record low of 0.25 percent, ECB President Mario Draghi said the bank’s latest projections foresee economic growth of 1.2 percent this year, up slightly from the 1.1 percent estimate made in December.
It trimmed its inflation forecast for this year, to 1 percent from 1.1 percent. But it said inflation will rise steadily to 1.7 percent by the last quarter of 2016.
Some economists worry the eurozone might fall into deflation, a sustained drop in prices that can choke growth, though the ECB has said it doesn’t expect that. Inflation in February was only 0.8 percent, well below the bank’s goal of just under 2 percent. However, the core rate, which excludes volatile food and fuel costs, rose to 1 percent from 0.8 percent the month before.
Japan fell into deflation in the 1990s but Draghi drew an extended contrast between Europe and Japan, saying they were different. Inflation expectations remained steady in the eurozone, “and that was not the case in Japan,” he said.
He added that the ECB had taken action in time: “We are taking early decisive action on the monetary policy front.”
Some analysts were expecting the ECB to trim its deposit rate below zero, effectively penalizing banks for holding money at the ECB instead of lending it. Others thought it might stop taking weekly deposits, which would cause an increase in the amount of money in the financial system.
A more far-reaching measure would be large-scale purchases of financial assets such as government bonds with newly created money, as the US Federal Reserve has done.
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