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Draghi affirms ECB will decide on tapering in the autumn

EconomySep 07, 2017 09:30AM ET
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© Reuters. ECB will likely announce bulk of tapering details in October – Even while the European Central Bank made no changes to either policy or its statement on Thursday, Mario Draghi, president of the euro zone monetary authority, affirmed that a decision on whether to reduce, or taper, asset purchases will be decided in autumn, most likely in October.

The ECB kept monetary policy on hold on Thursday with the main refinancing rate left unchanged at 0%, the rate on bank overnight deposits kept at -0.40%, while the rate on the marginal lending facility, or emergency overnight borrowing rate for banks, stayed at 0.25%.

The central bank also left unchanged its €60 billion ($71.8 billion) per month asset purchase program and kept its promise to run the accommodation “until the end of December 2017, or beyond, if necessary”, while also leaving the door open to a possible increase in size “if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation”.

Tapering details expected in October

However, in a repeat of the prior meeting, Draghi did promise that “this autumn we will decide on the calibration of our policy instruments beyond the end of the year.”

While the ECB chief did show caution on the future developments he admitted that “probably the bulk of these decisions will be taken in October.”

Growth forecasts revised up, inflation expectations lowered

Draghi also revealed that the ECB had increased growth projections for this year while lowering inflation forecasts for both 2018 and 2019.

Specifically, the ECB now expects 2017 growth to be 2.2%, compared to 1.9% in June, while projections for 2018 and 2019 were left unchanged at 1.8% and 1.7%, respectively.

The monetary authority left inflation forecasts for this year unchanged at 1.5%, but lowered forecasts for 2018 to 1.2% from the prior 1.3% and for 2019 to 1.5% compared to the previous 1.6%.

ECB monitoring euro volatility

Regarding the single currency, Draghi avoided mentioning the euro’s recent strength, although he did focus on moves in currency markets.

“Recent exchange rate volatility represents a source of uncertainty which requires monitoring,” Draghi stated.

While the ECB felt that risks surrounding the outlook for growth in the euro zone were “roughly balanced”, Draghi did mention currency markets as a source of downside risk.

While mentioning the “current positive cyclical momentum” as an upside risk, he said that negative issues were “primarily (related) to global factors and developments in foreign exchange markets”.

In reaction to Draghi’s remarks, the euro spiked to an intraday high of 1.2059 against the dollar. EUR/USD was last up 0.87% at 1.2020 by 9:29AM ET (13:29GMT), compared to 1.1972 ahead of the press conference.

The euro was also higher against the pound and the yen, with EUR/GBP climbing 0.43% to 0.9175 and EUR/JPY advancing 0.53% to 130.87.

Meanwhile, European stock markets traded higher. The Euro Stoxx 50 rose 0.67%, Germany's DAX gained 0.84%, France’s CAC 40 advanced 0.57%, while London’s FTSE 100 traded up 0.61%.

Draghi affirms ECB will decide on tapering in the autumn

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Irina Leivsgard
Irina Leivsgard Sep 07, 2017 1:29PM ET
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And he said "probably in October if we are ready, but if we don't feel ready- it will be postponed"  :-)
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