Investing.com - European Central Bank (ECB) president Mario Draghi reiterated the need for accommodative monetary policy on Thursday as he brushed off signs of weakness in the euro zone but warned of protectionism, all the while leaving markets focused on the eventual end date for asset purchases.
After the ECB left rates untouched on Thursday and made no changes to plans to continue purchasing €30 billion ($36.5 billion) of bonds each month until “the end of September 2018, or beyond, if necessary”, Draghi delivered his remarks in the traditional press conference.
Euro area growth still solid; risks on global level from protectionism
Draghi brushed off recent signs of weaker economic growth. “Following several quarters of higher than expected growth, incoming information since our meeting in early March points towards some moderation, while remaining consistent with a solid and broad-based expansion of the euro area economy,” he insisted.
In fact, the ECB chief emphasized that underlying strength in the euro zone economy supported the central bank’s belief that inflation would return to the 2% target in the medium term.
According to Draghi, the risks to the euro area growth outlook remain “broadly balanced”.
“However, risks related to global factors, including the threat of increased protectionism, have become more prominent,” he added.
Markets appeared to take the economic outlook in a hawkish fashion as the euro strengthened. EUR/USD was last trading at 1.2202, compared to 1.2166 ahead of the press conference, while EUR/GDP changed hands at 0.8720 compared to 0.8710 earlier.
Few signals for future ECB policy changes
Draghi insisted that the underlying strength of the euro area economy continues to support the ECB’s confidence that inflation will converge towards its inflation target of below, but close to, 2% over the medium term.
He also repeated that “measures of underlying inflation remain subdued and have yet to show convincing signs of a sustained upward trend”.
Not unlike the meeting back in March, Draghi reiterated that “an ample degree of monetary stimulus remains necessary for underlying inflation pressures to continue to build up and support headline inflation developments over the medium term”.
Just as no new changes were made to the statement with regard to the asset purchase plan, known as QE, Draghi sidestepped reporters’ questions as to the outlook for the June meeting.
“It wasn’t discussed,” Draghi stated.
“Up to now, just sending out the introductory statement would have enough to convene the ECB’s main message: let’s meet back in June,” ING chief economist Carsten Brzeski commented.
QE end date key for clues on first rate hike
Prior to the meeting, Brzeski said the ECB has several scenarios for the next step in winding down asset purchases.
He believes that an abrupt end to QE is highly unlikely and leans more towards a further extension of the program that he separates into two general possibilities which could ultimately result in a combination of both options.
On the one hand, Brzeski suggested an open-extension to the program at half the current amount, bringing the purchases to around €15 billion from the current €30 billion, and lasting until at least the end of the year.
However, this economist also sees the possibility of a compromise between hawks and doves that could be “much lower for much longer” but with an end date. As an example, he pointed to a drop to €5 billion but for six months.
In any case, Brzeski believes the key point to watch is that “end date” as markets currently believe that the first ECB interest rate hike will arrive 6 months after the end of QE.