AS EXPECTED, the European Central Bank did not ease policy when its governing council met today. However, the ECB underlined its determination to take further measures, if necessary, to get inflation, currently just 0.2%, back to the goal of nearly 2%. Speaking at the press conference after the meeting, Mario Draghi, the ECB’s president, stressed the council’s willingness, readiness and capacity to act.
Revised forecasts made clear why the ECB may have to step up its quantitative-easing programme, announced in January and launched in March. Three months ago, central-bank staff envisaged GDP growing by 1.5% this year, 1.9% in 2016 and 2.0% in 2017. These forecasts have been lowered to 1.4%, 1.7% and 1.8% respectively. Mr Draghi said that the downward revisions were mainly because external demand is now expected to be weaker.
Inflation is also set to be lower than previously forecast. In June, staff projections showed consumer prices rising by 0.3% in 2015, 1.5% in 2016 and 1.8% in 2017. The latest forecasts are for inflation of only 0.1% this year, rising to 1.1% in 2016 and 1.7% in 2017. These downward revisions have occurred mainly owing to lower than expected oil prices.
Even these lower forecasts may turn out to be over-optimistic since the cut-off points for data were between August 12th and 21st. That meant they did not reflect the panic in...Continue reading
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