Eurozone holds monetary policy as inflation outlook weakens

THE EUROPEAN Central Bank (ECB) held interest rates yesterday, as was widely expected after last month’s surprise cut.

Bank president Mario Draghi said the institution was “ready to consider all available instruments,” adding: “We may experience a prolonged period of low inflation.”

The ECB’s forecast for the years ahead suggests that the harmonised index of consumer prices (HICP) will still only reach 1.1 per cent next year and 1.3 per cent in 2015, still some way below the ECB’s target rate of near to two per cent.

Draghi also said that the ECB’s board had briefly discussed the possibility of a negative deposit rate, but that nobody proposed to cut rates at the recent meeting.

“When it comes to unconventional measures, there is clearly no rush,” according to Ken Wattret of BNP Paribas.

Christian Schulz of Berenberg bank added: “If further downward revisions to inflation become necessary, with the earliest possibility in March, the ECB could be forced to act again. Supporting the dovish bias, Draghi mentioned that the ECB was aware of the dangers of a prolonged period of below-target inflation.”