FRANKFURT, Germany”•The European Central Bank on Thursday raised its 2016 growth forecast slightly but lowered its projections for 2017 and 2018, with bank chief Mario Draghi saying “uncertainties” caused by the Brexit vote would weigh on trade.
“The economic recovery in the euro area is expected to be dampened by still subdued foreign demand, partly related to the uncertainties following the UK referendum outcome… and a sluggish pace of implementation of structural reforms,” Draghi said at a press conference in Frankfurt.
The ECB now expects gross domestic product to grow by 1.7 percent in 2016, up from a previous projection of 1.6 percent, Draghi said.
The euro economy should expand by 1.6 percent in each of the following two years, he added, down from the earlier 1.7 percent forecasts for 2017 and 2018.
Inflation expectations remain broadly unchanged, at 0.2 percent for 2016, 1.2 percent for 2017 and 1.6 percent for 2018.
The eurozone’s ultra-low inflation is a huge worry for the ECB, whose goal is to keep inflation near 2.0 percent.
The bank’s governing council decided at a policy meeting earlier Thursday to hold its record-low interest rates steady in a bid to encourage lending and drive up inflation.
The policymakers also opted not to make any changes to the bank’s ultra-loose monetary policy, choosing to stay the course with a massive asset-buying program to the tune of 80 billion euros a month.
“For the time being the changes are not so substantial to warrant a decision to act. Our monetary policy is effective,” Draghi said, though he hinted the bank stood ready to take further stimulus measures needed.
“There is no question about the will to act, the capacity to act, and the ability to do so,” he said.
But he also pleaded for patience to give the bank’s unprecedented stimulus measures a chance to work.
“Ultimately we’ve got to be patient,” Draghi said.
“Interest rates have to stay low for the economic recovery to proceed, for the economic recovery to firm up, which in the end will have a positive effect on banks’ balance sheets as well,” he said.
“Interest rates have to be low today for being high tomorrow.”
The lack of any major announcements disappointed some investors, who had expected Draghi to at least announce an extension of the ECB’s QE program.
“Today’s ECB meeting can quickly be filed away under ‘non-event’,” said Carsten Brzeski, chief economist at ING-Diba.
Eurozone stock markets fell in response to the lack of more stimulus, while the euro climbed.
The ECB “will need to announce further policy stimulus before long,” added analyst Jennifer McKeown at Capital Economics, noting that recent business surveys suggest more slow growth in the eurozone.
But since Britain has yet to trigger the process to extricate itself from the bloc, analysts warn that it could take time for the economic fallout to make itself felt.
The bank’s governing council voted to keep the benchmark refinancing rate at zero percent, while the rate on the marginal lending facility remains at 0.25 percent and the bank deposit rate at -0.4 percent.