No action from Draghi despite lower inflation

THE EURO strengthened against other major currencies yesterday, following the European Central Bank’s (ECB) decision not to ease monetary policy further, and official forecasts of low inflation for years to come.

Some economists had suggested that the central bank might choose to cut rates, but ECB president Mario Draghi held his ground and announced no new measures.

Eurozone inflation will still be only 1.7 per cent in the final quarter of 2016, below the target level, according to new forecasts revealed yesterday. Draghi insisted that expectations for inflation were still “firmly anchored”.

Against the pound, the euro strengthened 0.69 per cent, up to €0.8275 during the day, and climbed 0.96 per cent to a new 2014 high against the dollar, breaking above €1.385. Against the weak yen, the euro climbed by 1.62 per cent to nearly ¥143.

“The ECB seems perfectly content to sit on its hands for the foreseeable future and quite possibly won’t have to seriously consider changes to policy until the next forecasting round in June,” said Marchel Alexandrovich, senior vice president at Jefferies International.

The ECB also expect slightly stronger growth, with GDP growth forecast to rise by 1.2 per cent this year, 0.1 percentage points higher than previously.

“Draghi’s failure to confirm that today’s decision was unanimous suggests that some council members already see a need for more policy action,” said Capital Economics’ Jonathan Loynes.