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ECB, playing down fresh crisis fears, keeps rates on hold

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(Globalpost/GlobalPost)

The European Central Bank Thursday held its main refinancing rate at a historic low of 0.75 percent, playing down concerns that political gridlock in Italy could trigger a resurgence in the debt crisis.

The ECB's policy-setting governing council discussed a possible cut in interest rates at its regular monthly meeting, but the consensus was to hold them steady, ECB chief Mario Draghi told a news conference that followed the decision.

"Yes, we discussed the possibility of doing it. But the prevailing consensus was to leave rates unchanged," Draghi said.

With inflation in the 17-country eurozone currently expected to remain in line with the ECB's goal of close to, but just under, 2.0 percent, "this will allow our monetary policy stance to remain accommodative," Draghi said.

And the central bank's policy stance "will remain accommodative as long as needed," he insisted.

Draghi downplayed concerns that the political deadlock in Italy could destabilise the single currency area as a whole and reawaken the sovereign crisis which appears to have abated in recent months.

"If we look at contagion, you've seen that the contagion to other countries has been muted this time, contrary to what might have happened about a year and a half ago," Draghi said.

He added: "As you see, markets, after some excitement immediately after the elections, have now reverted back more or less to what they were before."

The Italian-born central banker noted that financial markets were in more confident mood than before and had recognised that elections were extremely frequent in the 17-country eurozone.

"All in all, right now, markets were less impressed than politicians and you," he quipped, referring to the assembled media.

He also shrugged off concerns that reforms in Italy could stall given the uncertain political situation.

"You have to consider that much of the fiscal adjustment that Italy went through will continue going on on automatic pilot," said Draghi.

The ECB chief also unveiled the bank's latest updated staff projections for growth and inflation for the single currency area and they trimmed the growth forecasts for this year and next as the impact of the bloc's debt crisis continued to be felt.

The projections saw the eurozone economy contracting by 0.5 percent in 2013 before recovering to grow by 1.0 percent next year.

The previous forecasts in December had pencilled in a contraction of 0.3 percent this year and growth of 1.2 percent in 2014.

The bank also slightly pared its inflation forecasts for 2014, leaving its estimate for this year unchanged at 1.6 percent.

It said it expected average inflation of 1.3 percent in 2014, compared with the level of 1.4 percent projected in December.

Newedge Strategy analyst Annalisa Piazza said she did not find tone of the press conference "as dovish as anticipated."

"At the current juncture, the ECB seems to appreciate the relative positive development of recent surveys and the improved confidence shown by the liquidity markets," the analyst said.

As such, the ECB would probably need to see much weaker hard data coming in before cutting rates further, she said.

As for Draghi's comments on Italy, Piazza said the central bank chief "makes clear that the effects of the elections were rather short-lived as he believes that markets have regained confidence.

"He sees less risks of contagion effects between financial markets," she said.

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http://www.globalpost.com/dispatch/news/afp/130307/ecb-playing-down-fresh-crisis-fears-keeps-rates-hold