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By Luke Heighton
     VILNIUS (MNI) - The possibilities of restarting quantitative easing,
cutting interest rates or further extending forward guidance were all brought up
by members of the European Central Bank's Governing Council at its monetary
policy meeting, Mario Draghi told a news conference Thursday, as the ECB
announced it would keep key rates on hold until at least the second half of
     The ECB also offered pricing details for a third round of targeted
longer-term refinancing operations, due to start in September. Council members
were "unanimous," Draghi said, in deciding to set the interest rate at 10bps
above the average main refinancing operations rate over the life of each
operation - as predicted by MNI on May 31. If banks use enough of the funds to
lend to the real economy, the rate will be as low as 10 basis points over the
deposit rate.
     "Risks surrounding the euro area growth outlook remain tilted to the
downside, on account of the prolonged presence of uncertainties, related to
geopolitical factors, the rising threat of protectionism and vulnerabilities in
emerging markets," Draghi said.
     "At the same time, further employment gains and increasing wages continue
to underpin the resilience of the euro area economy and gradually rising
     Draghi said the possibility that the ECB could eventually restart its asset
purchase programme or further extend forward guidance was raised by some
members, whilst others mentioned possible rate cuts.
     "The policy space is there and if contingencies materialise we stand ready
to act," Draghi said, but added that the council had not discussed "which
contingency would call for which instrument."
     "The use of forward guidance has been quite successful in steering market
expectations. It has become the major monetary policy tool," he said.
     Draghi reiterated the Council's confidence in its baseline assumptions, but
said a change in forward guidance had become necessary due to the prolongation
of uncertainties, as he called on "all countries" to achieve a more
growth-friendly composition of public finances.
     The Governing Council will continue to "monitor carefully the bank-based
transmission channel of monetary policy and the case for mitigating measures."
     Eurosystem staff macroeconomic forecasts showed annual real GDP is expected
to increase by 1.2% in 2019, 0.1 percentage point more than expected in March,
and by 1.4% in 2020, a forecast 0.2 percentage point lower. For 2021, the
forecast was reduced by 0.1 percentage point to 1.4%.
     Harmonised inflation is predicted to reach 1.3% in 2019, 1.4% in 2020 and
1.6% according to June's ECB staff macroeconomic projections. Compared with
March's assessment, the inflation outlook has been revised up by 0.1 percentage
point for 2019, and down by 0.1 percentage point for 2020.
     Measures of underlying inflation "remain muted," Draghi said, "despite the
somewhat better than expected data for the first quarter,' as global headwinds
continue to weigh on the euro area outlook.
--MNI London Bureau; +44 203 865 3829; email:
[TOPICS: M$E$$$,M$X$$$,MT$$$$,MX$$$$,M$$EC$]