Investing.com - European Central Bank chief Mario Draghi said Thursday that the historic stimulus measures implemented by the euro zone central bank will reinforce the momentum of the euro zone’s recovery.
Apart from cutting all interest rates under the ECB’s control, Draghi commented that the quantitative easing (QE) program will run until the end of March 2017 or longer if needed and would continue until there is a sustained rise in inflation.
“This comprehensive package will exploit the synergies between the different instruments and has been calibrated to further ease financing conditions, stimulate new credit provision and thereby reinforce the momentum of the euro area’s economic recovery and accelerate the return of inflation to levels below, but close to, 2%,” Draghi said in his introductory statement to the press conference.
Draghi added that it was “crucial to avoid second round effects” from the low costs of oil.
As far as interest rates were concerned, Draghi noted that the ECB expects to maintain interest rates at “present or lower levels for an extended period of time, and well past the horizon of our net asset purchases”.
Grow will continue at a moderate pace but we have cut forecasts
Regardless, Draghi noted that the ECB expects the euro zone to continue its recovery at a moderate pace.
However, the ECB chief noted that the economic recovery in the euro area continues to be dampened by subdued growth prospects in emerging markets, volatile financial markets, the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms.
In this context, the ECB cut growth forecasts in their most recent projections to 1.4% GDP growth for the euro zone in 2016, compared to the prior 1.7%, and then 1.7% in 2017 from the previous 1.9%. The 2018 forecast was held at 1.6%.
Draghi added that the risks to the growth outlook remained “tilted to the downside” due particularly to “heightened uncertainties regarding developments in the global economy, as well as to broader geopolitical risks”.
Inflation forecast sharply reduced for 2016
Furthermore, the ECB made a large cut to the forecast for inflation in the euro zone in 2016 to 0.1% from the prior 1.0%.
The central bank also cut the 2017 estimate for inflation to 1.3% from the prior 1.6%, while maintaining the forecast for 2018 at 1.6%.
Tools implemented in policy decision statement issued earlier Thursday
As background, the ECB policy decision statement released at 12:45GMT or 7:45AM ET on Thursday revealed that the euro zone central bank had decided to hold no bars, cutting the benchmark interest rate to a record-low 0.0% from 0.05%, surprising market players who were expecting no change.
The ECB also cut the deposit rate to -0.4% from the prior -0.3% which was in line with expectations, but unexpectedly cut the marginal lending rate to 0.25%, from the prior 0.3%.
Furthermore, the asset purchase program was increased by €20 billion to €80 billion monthly, surpassing the consensus estimate of a €10 billion rise.
Additionally, the ECB expanded to the program to include investment grade euro-denominated bonds issued by non-bank corporations in the euro area in the list of assets available for regular purchase.
Finally, the euro zone central bank announced a new series of four targeted longer-term refinancing operations to be launched in June.