European Central Bank to keep taps open as economic outlook uncertain

The American Petroleum Institute Tuesday reported a 4.6 million barrel decline in US inventories over the latest reporting week, but also a 4.1 million barrel rise in gasoline stocks. This measure is meant to stimulate the economy and inflation.

After Draghi and Praet went out of their way to knock down any debate over whether interest rates might rise before QE ends, economists are sticking to their forecast that the deposit rate won't be lifted until the third quarter of 2018.

One of the constant headaches for the bank has been that inflation has been below the 2% target for so long.

Markets are now expecting for the European Central Bank to announce further tapering of its quantitative easing as soon as in autumn.

Escalating tensions in the Middle East, the impending testimony of the former Federal Bureau of Investigation director, British elections and a European Central Bank meeting this week, all took their toll on Asian stocks, oil and the dollar on Tuesday.

Trading was choppy in the USA session ahead of key events scheduled for Thursday, when Britain will hold a national election, the U.S. Federal Bureau of Investigation's former director will testify to Congress and European Central Bank (ECB) policymakers meet to decide on policy. Draghi, chief economist Peter Praet and vice president Vitor Constancio have remained more cautious.

"Mario Draghi should thus recall that there are no signs of a convincing upward trend in underlying inflation yet", Lemangnen predicted.

The European Central Bank judged yesterday (10 April) that it had a successful 2016, claiming in its annual report that it had nurtured economic recovery and that it was the eurozone's most successful post-crisis year.

Policymakers may also discuss closing the door to further rate cuts, although any decision on the matter is far from certain, the sources said.

Both options look unlikely. So, negative interest rates could still be a consideration.

"That would suggest that it would be very hard for the rate hawks on the governing council to force through an early departure from the very accommodative policy that the European Central Bank is pursuing right now", said Shaun Osborne, chief FX strategist at Scotiabank in Toronto, said. The central bank now says it'll keep buying debt at €60 billion a month until at least the end of the year.

The ECB is keen to avoid financial market upsets as it heads for the exit from its bond-buying program.

Yields - which move inversely to prices - nudged off multi-week lows as a meeting of the bloc's monetary guardians shifted the focus away from geopolitical events that have seen investors stock up on safe-haven bonds in recent days.

Draghi has repeatedly made it clear the European Central Bank will only move to tighten its hold on the supply of money to the economy when it feels inflation is on a "sustainable" path to its two per cent target.

Meanwhile, pressure from politicians in fiscally conservative countries like Germany is mounting over low inflation's impact on savers. The ECB will hold its policy meeting on Thursday and markets were also braced for former FBI Director Comey's testimony to the Senate intelligence committee which is also due on Thursday.

Latest News