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13 September

By Ahmed Mamdouh

Category: Fundamental Comment

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Draghi: ECB cuts growth forecasts, warns of protectionism

ECB President Mario Draghi confirmed holding interest rates and said the central bank would keep rates at record low until at least next summer.

The ECB is predicted to end its bond purchases after December, but will keep re-investing the proceeds from the scheme “for an extended period of time”, and as long as needed to maintain “favorable liquidity conditions” and “an ample degree of monetary accommodation,” Draghi revealed.

Euro area growth outlook are “broadly balanced,” yet warned that risks from protectionism and emerging market volatility have risen.

Draghi said the spillovers from Turkey and Argentina on the euro area have “not been substantial.”

As expected, the ECB downgraded its growth forecasts an increase by 2% this year (down from 2.1%) and by 1.8% next year (down from 1.9%), while the ECB held its inflation outlook.

Inflation will hover around 1.7% in the next few years, which will be close to the ECB’s mandate of keeping inflation near 2 percent.

Draghi said significant stimulus still needed to support inflation, and the ECB stands ready to adjust all instruments if needed. Uncertainty around underlying inflation has diminished.

He insisted firmly that Italy would stick with EU budget rules, revealing that he doesn’t see signs of contagion from Italy to other eurozone countries.

As of 12:57 GMT, the euro traded higher at $1.1677 as Draghi downplayed risks stemming from emerging markets and a lower than forecast US inflation data.

Ahmed Mamdouh

Ahmed Mamdouh is the head of the English Fundamental Analysis at D1stp.com, with 9 years of experience in the financial markets. Mamdouh holds a Master’s Degree in Economics from The American University in Cairo and a Bachelor Degree in Economics from The Faculty of Economics and Political Science, Cairo University.

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