ECB Leaves Rates Unchanged – Confirms QE Until September – Lifts Growth and Inflation Forecasts

ECB Leaves Rates Unchanged Confirms QE
ecb

The European Central bank left monetary policy and guidance unchanged, while confirming their quantitative easing program schedule of 30 billion Euros of asset purchases from January to September next year or beyond, if necessary. So, there is still no commitment to an end date for QE and the statement also re-affirmed that interest rates will “remain at their present levels for an extended period, and well past the horizon of the net asset purchases”, which suggests rates hikes won’t be on the agenda until 2019 at the earliest. Furthermore, maturing assets will be reinvested until well after the end of net asset purchases, so a reduction of QE holdings won’t be an issue until then either.  Trader’s now await the Draghi presser.

The ECB Lifts Growth and Inflation Forecasts

ECB sees a strong pace of economic expansion and significant improvement in growth outlook, suggest an improvement in the inflation outlook, but at the same time inflation remains low and an “ample degree of stimulus is still needed”. The ECB acknowledges a stronger than expected growth environment, but Draghi still defends his expansionary policy by pointing to still low domestic price pressures.

The new growth forecasts see growth at 2.4% this year, 2.3% next year, 1.9% in 2019 and 1.7% in 2020, which is a clear upward revision. Regarding inflation Draghi actually said that underlying inflation is expected to rise gradually also thanks to the ECB’s expansionary policy and the new inflation outlook sees headline rates at 1.4% next year, 1.5% in 2019 and at 1.7% in 2020. Only the 2018 forecast has been revised up and that thanks to energy and food prices and with the 2020 rate still slightly below the ECB’s objective.

Eurozone PMIs End 2017 at 82 Months High

All readings unexpectedly improved again, with the manufacturing PMI reaching a record high of 60.6 and the services reading an 80 month high of 56.5, bringing the composite to 58.0, the highest in 82 months. Manufacturing orders jumped at the highest rate since April 2000 and services orders growth was the joint highest in over a decade according to Markit, with buoyant job creation as companies boosted capacity. A picture of a very strong broad-based recovery amid equally broad-based demand growth.

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