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MNI (London)
By Christian Vits
     FRANKFURT (MNI) - While the European Central Bank staff economists raised
its projections on both GDP growth and inflation, ECB President Mario Draghi
maintained his soft and dovish wording on the future monetary policy path.
     "Compared with the September 2017 ECB staff macroeconomic projections, the
outlook for real GDP growth has been revised up substantially," Draghi said at
Thursday's post-policy meeting press conference. "At the same time, domestic
price pressures remain muted overall and have yet to show convincing signs of a
sustained upward trend," Draghi added.
     ECB staff now expect inflation to rise to 1.4% next year, 0.2 percentage
points higher than forecast in September, but remaining far below the price
stability mandate of "below but close to 2%". However, the figure for core
inflation was revised lower to 1.1%.
     Economic growth is seen at 2.3% in 2018, a marked upward revision of 0.5
percentage points. Despite the revision, Draghi noted risks surrounding the euro
area growth outlook remain "broadly balanced".
     From the viewpoint of the more hawkish Council members the robust recovery,
with 17 consecutive quarters of economic growth, will suggest bringing further
expansion of the central bank's balance sheet to an end.
     By contrast, Draghi stressed that "the vast majority wants to keep the
open-ended feature."
     As expected, the main interest rates were kept on hold and Draghi restated
that in January, the ECB will halve the current monthly amount of asset
purchases to E30 billion, with purchases announced until the end of September
2018 "or beyond, if necessary," Draghi said.
     As in the past, the Eurosystem will reinvest the principal payments from
maturing securities purchased under the APP for an extended period of time after
the end of its net asset purchases, and "in any case for as long as necessary."
     --FORECASTS FOR 2020
     The ECB published projections on growth and inflation for the year 2020 for
the first time, with forecasts pegged at 1.7% for both figures.
     Asked whether this figure would be sufficiently close to the banks
inflation target, Draghi said "the issue is how strong the path" towards 2% is.
"The news on inflation remains muted," he noted with regard to the current
juncture and argued that therefore an "ample degree of monetary stimulus" is
     "We can safely say that deflation risks have disappeared. We can also
safely say that the likelihood of low inflation rates of 0.5, 0.6%" has
diminished. "But we cannot go beyond that," Draghi said.
     Joerg Kraemer, Chief Economist at Commerzbank in Frankfurt, commented that
for the next two or three years central banks can't influence inflation much as
globalisation is the main driver. "But instead of acknowledging this the ECB
fights the inevitable low inflation," he said.
     "Presumably, the ECB chains its monetary policy to low inflation as the
Governing Council is dominated by highly-indebted Southern European countries,
which have a vital interest in continued low rates," he said.
     At the end, it was also striking that Draghi used the term "that was not
discussed" possibly more often than any previous meeting. The ECB apparently is
already in Christmas mode.
--MNI Frankfurt Bureau; +49 69 97782671; email:
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