Draghi Says Recovery Is Broad While Inflation Fails to Convince

Euro-Dollar
  • Draghi Says Recovery Is Broad While Inflation Fails to Convince

Mario Draghi showed growing enthusiasm about the state of the euro-area economy, while cautioning that inflation pressures remain too weak to contemplate paring back stimulus.

“It’s true that growth is improving, things are going better,” the European Central Bank president told reporters in Frankfurt on Thursday after the Governing Council agreed to keep stimulus settings unchanged. “In 2016 we were speaking of a fragile and uneven recovery. Now it’s solid and broad.”

Euro-area economic data have demonstrated increasing resilience, prompting ECB officials to publicly debate when they might start to wind down asset purchases and raise interest rates. Economists predict the first hints of an exit from extraordinary stimulus may come by June 8, when the Governing Council next announces policy and publishes projections on the economic outlook.

“The risks surrounding the euro area growth outlook, while moving towards a more balanced configuration, are still tilted to the downside,” Draghi said. “Underlying inflation pressures continue to remain subdued and have yet to show a convincing upward trend.”

The ECB president said that the region’s recovery is becoming “increasingly solid” and acknowledged that the Governing Council had a discussion on whether to change its assessment on the risks to growth. What was not discussed were changes to the current forward guidance, which says that rates will stay at present or lower levels for an extended period, and well past the horizon of net asset purchases.

The euro rose immediately after Draghi’s remarks before giving up the advance soon after. Having been up as much as 0.3 percent at one point, it was down 0.2 percent at $1.0879 as of 3:25 p.m. Frankfurt time.

Policy makers could change their guidance as a first step toward phasing out QE at the beginning of 2018 and conducting a first rate hike in the third quarter of that year, according to a Bloomberg survey of economists conducted before this week’s Governing Council meeting.

Draghi spoke on the same day that the European Commission’s economic confidence index showed the highest reading since August 2007, evidence of broadening optimism on the euro region’s recovery. Data next week is expected to show the economy grew 0.4 percent in the three months through March, and indicators in the past month suggest further strengthening.

About the Author

Samed Olukoya
CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade long experience in the global financial market. Contact Samed on Twitter: @sameolukoya; Email: [email protected]

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