ECB rejects deflation fears as it holds rates at 0.25%

Mario Draghi, President of the European Central Bank Mr Draghi said inflation would be low for "protracted period of time"

Related Stories

The head of the European Central Bank (ECB) has said deflation is not a threat to the eurozone economy.

The ECB kept its benchmark interest rate at 0.25% after its latest meeting. The rate was cut to its current record low in November.

ECB president Mario Draghi said: "We have to dispense with this idea of deflation. The question is - is there deflation? The answer is no."

Eurozone inflation slowed to 0.7% in January from 0.8% in December.

The figure fuelled worries about whether the euro bloc could suffer deflation, potentially de-railing economic growth.

Analysis

Deflation, according to one commentator, is "the elephant in the room".

Not yet it isn't, according to Mario Draghi, the ECB President. Crashing around in the corridor outside perhaps, but it hasn't barged across the threshold into the ECB's Council room.

In his news conference, he posed himself a rhetorical question: "is there deflation? The answer is no".

But he did not claim there was no danger. And he repeated his insistence that the ECB is ready to consider all available policy instruments.

There are options. At least one is conventional - a further cut in interest rates, but they are so low already that the ammunition is almost spent.

Unconventional measures are possible but they are fraught with technical, political or even legal difficulties.

When he says the ECB is willing to take further decisive action if required, we should take him at his word.

But he is surely hoping that it won't be necessary.

However, the ECB believes the economies of the eurozone are recovering after the bloc emerged from recession last summer.

In addition to holding its benchmark rate at 0.25%, the ECB also left the rate it pays on bank deposits unchanged at zero.

At a press conference to explain the ECB's latest decision, Mr Draghi said: "There is going to be a low level of inflation for a protracted period of time, but deflation? No.

"The modest recovery is showing encouraging signs. The demand side is getting stronger, not weaker. We have to treat the recovery with extreme caution. It is very fragile. It is starting from very low levels but it is proceeding."

On Wednesday, Markit's Eurozone Composite Purchasing Managers' Index indicated that growth in the private sector last month was its strongest for two and a half years.

Stress tests

Holger Schmieding, chief economist at Berenberg Bank, believes the bank is right to believe the European economy is recovering : "Prices are stable. Leading economic indicators are close to trend.

"The European Commission's Sentiment Index is at 100.9 which is actually a little bit above trend. So the recovery is happening. Draghi should have acted earlier, but belatedly, the recovery is on track."

 German steelmaker ThyssenKrupp controlling a blast furnace in Duisburg European growth is recovering according to the ECB

Mr Draghi said the bank was also waiting for its own staff's projections for the region's economy for the next two years, due out in March, and the eurozone growth figures for the last quarter of 2013.

He said he believed that changes in monetary flows and credit conditions had been affected by banks cutting back on lending, ahead of the central bank's Asset Quality Review, a stress test of 128 banks due to take place this year.

"We have also been concerned about the high level of volatility in the emerging markets," he added. "We have to look through the high volatility to see if it is a temporary phenomenon or something that will stay for a prolonged period of time."

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

BBC Business Live

  1.  
    HUGO BOSS SHARES 08:15:
    Hugo Boss shoot

    Shares in Hugo Boss - of which a new portion have just started trading - are down 5.1% at open. They were priced at a 5.2% discount for the float.

     
  2.  
    NPOWER SALES BAN? 08:06: BBC Radio 4

    NPower has the dubious tag of being the country's most complained-about energy company. So bad, Ofgem is considering stopping it from selling on the phone. That will be announced later this morning. In a rare return to the Today programme, You and Yours' Winifred Robinson has been into N Power's main call centre in Sunderland to see how it's trying to improve.

     
  3.  
    FTSE RESHUFFLE 07:51: Radio 5 live

    The FTSE 100 is having a reshuffle today, accepting growing companies and booting out shrinking ones. Brenda Kelly, chief market strategist at IG says Dixons may regain its place among the top 100 biggest companies in the UK. New joiners "can expect to see a boost in the share price," she says

     
  4.  
    ASHTEAD RESULTS 07:45:

    Ashtead, which rents out industrial gear like generators and welders through its A-Plant business, said revenue and profit for the first quarter grew as its markets recover. It's been clever with it's debt too, it says. 93% is in dollars, which limits the effect of a strong pound on earnings. Net profit rose to £74.7m from £60.7m.

     
  5.  
    INVEST UKRAINE 07:29: BBC Radio 4

    Ukraine's biggest external investor is the European Bank for Reconstruction and Development. Serki Acumer, country manager for the EBRD tells Today: "If you want to get in early in the equation where the prices are reasonable, I think this is the time to invest." For those who haven't come across this body, it was formed in 1991 and is owned by 64 countries, the European Union and the European Investment Bank. Website here.

     
  6.  
    HARGREAVES LANSDOWN 07:14:
    Building

    The stockbroker Hargreaves Lansdown says for the year ended 30 June it looked after 29% more money - £46.9bn. Net profit rose to £162m from £148m a year earlier. The Retail Distribution Review, which changed how companies charge for advice, tied them up for 18 months, but Hargreaves says it is able to take staff off that process now and make use of them elsewhere.

     
  7.  
    BANK REFORM 07:06: Radio 5 live

    Andrew Tyrie, chairman of the House of Commons Treasury Committee, has more on Wake Up to Money. "We need much longer deferral of bonus payments" in banking, he says. There's still a problem of trust with banks, he says.

     
  8.  
    INVEST UKRAINE 06:52: BBC Radio 4

    The Ukrainian President Petro Poroshenko is in London trying to drum up business at the Invest in Ukraine conference. The biggest investor in the country is the European Bank for Reconstruction and Development. Serki Acumer, country manager for the EBRD tells Today: "Clearly the challenge to Ukraine's territorial integrity and the fight against that is just sapping a tremendous amount of financial resources in this very difficult period of adjustment Ukraine is going through."

     
  9.  
    CREDIT SUISSE PROBE 06:38:
    Banking logo

    In case you missed this, Credit Suisse is investigating two of its traders in London over allegations of misconduct. According to reports, two employees on its European equities sales team are under scrutiny over their electronic communications. One trader is said to have improperly shared client information with her husband, who works at a rival bank.

     
  10.  
    THE POOND 06:30: Radio 5 live

    Brenda Kelly, chief market strategist at IG is now talking on Wake Up to Money about Scottish independence and that poll showing a gain for "Yes". "The news that the gap between the yes and no votes from YouGov has narrowed had a downward effect on the pound," she says. Her company estimates there's a mere 20% chance of independence.

     
  11.  
    Via Twitter Adam Parsons Business Correspondent

    tweets: "Andrew Tyrie: customers' confidence in banks "has been badly shaken...and will take years to fix. We haven't solved all these problems" #WUTM"

     
  12.  
    SUPERMARKET PERFORMANCE 06:11: Radio 5 live
    Tesco trolleys

    Brenda Kelly, chief market strategist at IG, is talking about supermarkets on Wake Up to Money. "Aldi and Lidl are really starting to take market share."Tesco's profit warning has led all supermarkets' share prices lower, she says as the discounters gain market share.

     
  13.  
    BANK REFORM 06:05: Radio 5 live

    Wake up to Money has Andrew Tyrie, the chairman of the House of Commons Treasury Committee and scourge of the bank bosses. He tells the programme: "The [banks'] spirit is willing often at the top, but sometimes the flesh is weak. These are very large institutions and they are finding it difficult to get the trickle-down" of new management ideas."

     
  14.  
    06:02: Howard Mustoe Business reporter

    Good morning! Get in touch wit us via email bizlivepage@bbc.co.uk or on twitter @BBCBusiness

     
  15.  
    06:01: Rebecca Marston Business reporter, BBC News

    Good morning. Sex and drugs and GDP. An unlikely lyric but it is going to be news. Officially, the 2012 economic figures will include income made on the black market, so we'll have those when they're released later. And more. Oh yes.

     

Features

From BBC Capital

Programmes

  • A tankHARDtalk Watch

    The West looks 'really weak' against a 'power drunk' Russia, says a senior Ukrainian diplomat

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.