Thursday, April 17, 2014   

Financial markets eye ECB growth and inflation projections
(12-05 16:53)

The European Central Bank will withhold new policy measures at its final meeting of the year today after a surprise quarter-point rate cut last month, analysts said.
But the financial markets will be keeping a close eye on the ECB's latest growth and inflation forecasts as to any clues regarding the timing of later moves, the analysts said.
The ECB took markets by surprise last month and pared back its central “refi'' refinancing rate by a quarter of a percentage point to a record low of 0.25 percent.
The trigger for the move was an unexpectedly sharp slowdown in area-wide inflation to just 0.7 percent in October, AFP reports.
In November, the inflation rate increased fractionally to 0.9 percent.
But analysts believe that does not sound the all-clear and the ECB may have to take further action again at some point.
“Following the unexpected rate cut on November 7, Thursday's ECB meeting is unlikely to bring any policy change. We expect interest rates to be kept on hold and no new unconventional measures,'' said UniCredit economist Marco Valli.
Nevertheless, “investors' focus will be squarely on the ECB's updated macro-economic projections, especially those for CPI [consumer price index], which will reveal the numbers that convinced the central bank to cut rates and introduce a new dovish inflation rhetoric,'' Valli said.
There is much concern that the persistently low level of inflation in the 17 countries that share the euro could turn into deflation.
ECB officials have been keen to stress that they believe what the euro zone is currently experiencing is “disinflation'' not “deflation.’’
Disinflation describes slowing price rises which remain in positive territory but reflect a stagnating economy in which growth and jobs are elusive.
By comparison, deflation is where prices fall in real terms, which encourages consumers to put off buying goods in the expectation that if they wait, they will get them cheaper.
That dampens demand, adding to the downward pressure in the economy as companies hold back investment, in turn impacting jobs and demand in a vicious circle seen at its worst in the 1930's Great Depression.
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