By Laurie Laird
VILNIUS (MaceNews) -The European Central Bank has acknowledged the weakening euro zone economy, extending its forward guidance and reiterating the governing council’s pledge to deploy a range of unconventional measures should conditions falter further.
The ECB kept its deposit facility rate at -0.4% at its latest governing council meeting, and vowed to keep rates at a record-low level until the middle of 2020, extending by six months forward guidance provided at the last meeting in late April. Responding to a question, ECB President Mario Draghi acknowledged the success of forward guidance ‘in steering market expectations.” Draghi will complete his term in October but expressed optimism that his successor will use the policy tool with equal effect.
The governing council admitted that the risks surrounding the euro area growth outlook remain “tilted to the downside,” citing the rising threat of protectionism as one of the main uncertainties to its forecasts. “We might have hoped for a trade deal by now,” Draghi told reporters after the meeting. “The uncertainty about global trade growth has extended beyond what we thought in March. That is why we extended our forward guidance.” The ECB president also said that “several members” of the governing council “raised the possibility of further rate cuts.”
However, President Draghi stressed that economic conditions are nowhere near as grave as in 2012, when he famously pledged to “do whatever it takes” to preserve the euro. “We are not even comparable with the conditions of seven years ago,” he said, citing the euro zone’s “lowest unemployment rate in many, many years.”
In fact, ECB economists raised their forecast for 2019 growth to a rate of 1.2%, from 1.1% in March, while revising the 2020 forecast down by 0.2 percentage points to 1.4%. Staff economists also lifted the 2019 inflation forecast by 0.1 percentage point to an annual rate of 1.3%, still well below the ECB’s target of close to but below a rate of 2.0%.