The euro lost 0.6 per cent against the pound at lunchtime after comments from European Central Bank (ECB) chief Mario Draghi said Eurozone inflation would be lower and that recent market volatility presented downside risks.
In comparison with the June 2015 Eurosystem staff macroeconomic projections, the outlook for HICP inflation has been revised down, largely owing to lower oil prices. Taking into account the most recent developments in oil prices and recent exchange rates, there are downside risks to the September staff inflation projections.
The ECB is now forecasting inflation of 0.1 per cent in 2015, 1.1 per cent in 2016 and 1.7 per cent in 2017. These are all lower than in June, when it projected inflation would be 0.3 per cent in 2015, 1.5 per cent in 2016 and 1.8 per cent in 2017.
The ECB’s top brass even said inflation could turn negative for a short period.
He also said that recent global stock market volatility presented renewed risks, but that the governing council “judged it immature” to judge whether they would have a lasting impact on Eurozone growth and inflation.
Draghi stressed that the ECB’s asset purchase programme “provides sufficient flexibility” in terms of size, composition and duration, in case recent developments threatened the Bank’s attempts to reach its two per cent inflation over the medium term.
The ECB kept interest rates at record lows as was widely expected.