European Central Bank holds firm through global trade tensions

The European Central Bank was unperturbed by global trade tensions yesterday, leaving its plans to exit massive stimulus for the eurozone by December unchanged as signs of a transatlantic thaw appeared, reports AFP from Frankfurt. Governors decided to leave interest rates at historic lows and stick to plans to halve "quantitative easing" or mass bond-buying from October before ending the scheme at the end of the year.

The gathering comes a day after European Commission President Jean-Claude Juncker and US President Donald Trump announced a series of measures to defuse an escalating trade row between the two blocs.

Declaring a "new phase" in relations, Trump said the US and EU agreed to "work together toward zero tariffs" on non-auto industrial goods, while the EU would import more American natural gas and soybeans.

Both men also said they would hold off on any new tariffs while negotiations continued.

But while Germany, the eurozone's largest economy, welcomed the agreement, France had reservations.

ECB President Mario Draghi has repeatedly warned that "downside risks to the (economic) outlook mainly relate to the threat of increased protectionism".

That means the Juncker-Trump deal is "good news as far as the ECB is concerned," analyst Jennifer McKeown of Capital Economics said.

Nevertheless, at his 1230 GMT press conference Draghi will likely "continue to strike a relatively cautious

stance, we don't really know what the outcome of these talks is going to be," she predicted.

The ECB chief may also

address Trump's Twitter allegation last week that "China, the European Union and others have been manipulating their currencies and interest rates lower... taking away our big competitive edge".

Nevertheless, on monetary policy "the only potential drama today comes from economists betting on what colour tie ECB President Draghi will wear," UBS analyst Paul Donovan said.

Away from the White House fireworks, Draghi's main focus "will be on cementing the message from June" that the bank is withdrawing its support in response to the strength of the economy and its confidence it will eventually meet its inflation target, economist Carsten Brzeski of ING Diba bank predicted.

The Italian banker surprised observers last month by announcing the ECB will slash monthly net purchases of government and corporate bonds from 30 billion euros ($35 billion) to 15 billion from October, before ending them in December.

Alongside ultra-low interest rates, bond-buying or quantitative easing (QE) was designed to pump cash through the financial system and into the real economy, stoking growth and in turn powering inflation towards the central bank's 2.0 per cent price stability target.

After more than three years and some 2.4 trillion euros of QE, eurozone inflation hit 2.0 per cent in June after 1.9 per cent in May.

But with their eyes on meeting the target over the medium term, ECB policymakers are unlikely to budge from plans to leave interest rates at their historic lows -- the other pillar of its support to the economy -- until at least summer next year.

The latest ECB projections see annual inflation hovering at 1.7 per cent between this year and 2020 -- meaning "the ECB still has a long way to go, to say the least", Brzeski said.

 

European Central Bank holds firm through global trade tensions

The European Central Bank was unperturbed by global trade tensions yesterday, leaving its plans to exit massive stimulus for the eurozone by December unchanged as signs of a transatlantic thaw appeared, reports AFP from Frankfurt. Governors decided to leave interest rates at historic lows and stick to plans to halve quantitative easing or mass bond-buying from October before ending the scheme at the end of the year. The gathering comes a day after European Commission President Jean-Claude Juncker and US President Donald Trump announced a series of measures to defuse an escalating trade row between the two blocs. Declaring a new phase in relations, Trump said the US and EU agreed to work together toward zero tariffs on non-auto industrial goods, while the EU would import more American natural gas and soybeans. Both men also said they would hold off on any new tariffs while negotiations continued. But while Germany, the eurozones largest economy, welcomed the agreement, France had reservations. ECB President Mario Draghi has repeatedly warned that downside risks to the (economic) outlook mainly relate to the threat of increased protectionism. That means the Juncker-Trump deal is good news as far as the ECB is concerned, analyst Jennifer McKeown of Capital Economics said. Nevertheless, at his 1230 GMT press conference Draghi will likely continue to strike a relatively cautious stance, we dont really know what the outcome of these talks is going to be, she predicted. The ECB chief may also address Trumps Twitter allegation last week that China, the European Union and others have been manipulating their currencies and interest rates lower... taking away our big competitive edge. Nevertheless, on monetary policy the only potential drama today comes from economists betting on what colour tie ECB President Draghi will wear, UBS analyst Paul Donovan said. Away from the White House fireworks, Draghis main focus will be on cementing the message from June that the bank is withdrawing its support in response to the strength of the economy and its confidence it will eventually meet its inflation target, economist Carsten Brzeski of ING Diba bank predicted. The Italian banker surprised observers last month by announcing the ECB will slash monthly net purchases of government and corporate bonds from 30 billion euros ($35 billion) to 15 billion from October, before ending them in December. Alongside ultra-low interest rates, bond-buying or quantitative easing (QE) was designed to pump cash through the financial system and into the real economy, stoking growth and in turn powering inflation towards the central banks 2.0 per cent price stability target. After more than three years and some 2.4 trillion euros of QE, eurozone inflation hit 2.0 per cent in June after 1.9 per cent in May. But with their eyes on meeting the target over the medium term, ECB policymakers are unlikely to budge from plans to leave interest rates at their historic lows -- the other pillar of its support to the economy -- until at least summer next year. The latest ECB projections see annual inflation hovering at 1.7 per cent between this year and 2020 -- meaning the ECB still has a long way to go, to say the least, Brzeski said.