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Principale » German inflation to miss ECB target for another year, Bundesbank estimates show

German inflation to miss ECB target for another year, Bundesbank estimates show

13 Juin 2017

According to the latest policy statement, the Governing Council expects "the key European Central Bank interest rates to remain at their present or lower levels for an extended period of time, and well past the horizon of the net asset purchases".

It's a move that many will perceive as yet another sign of the eurozone's strengthening recovery, but Draghi warned that the bank's targets are some way away from being reached and consequently its stimulus policies are likely to continue at current levels for some time, at least into next year.

The European Commission today announced the Eurozone economy grew faster than previously thought, with output expanding by 0.6 per cent in the first quarter, a 1.9 per cent annual rate.

In response, the Euro Stoxx banking index is up 1.8% while German DAX 30 rose 0.3% closing in on the record high it set last week.

Mr. Draghi's message of patience is likely to cause further irritation in Germany, Europe's largest economy, where top officials have been calling urgently for a policy reversal from the European Central Bank. That means the Eurozone is growing at double the rate of the U.S. economy, now estimated at 1,2%.

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The ECB said it now saw inflation this year at just 1.5 percent, down from a previous forecast of 1.7 percent. The considerable downward revisions affirm that the future steps to alter the ECB monetary policy would be quite gradual, said Nordea Bank.

The ECB Governing Council delivered an important tweak to its forward guidance on rates. However headline inflation rates have started to roll over in May and core inflation continues to hover around 1 percent.

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It is probable that the discussion on what to do in 2018 (up to December the commitment remains in place for monthly bond buying, or quantitative easing, of €60 billion, while rate hikes will follow "well beyond" the end of QE) will only begin properly in September, on "tapering", the gradual reduction in bond purchases.

The ECB targets inflation of close to, but below, 2%.

The euro fell after the ECB cut its forecasts for inflation and said policymakers had not discussed scaling back the bank's massive bond-buying program.

Mr Draghi said: "The risks surrounding the euro area growth outlook are considered to be broadly balanced".

Draghi dampened expectations of an end to the ECB's massive stimulus programme anytime soon as he highlighted the subdued outlook for Eurozone inflation. It's obvious we'll not see any change in monetary policy today, and the key driver to the Euro will be the risk assessment on the economy.

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