President Mario Draghi explained the Governing Council’s latest monetary policy decisions at a press conference in Riga on June, 14, 2018 - Photo by ECB

JAKARTA (TheInsiderStories)The European Central Bank (ECB) bought public and private sector securities worth €29.9 billion in July under its expanded asset purchase programme. On June 14, the Governing Council of ECB has give a signal will continue to make net purchases under the asset purchase programme (APP) until the end of September 2018.

The APP is part of a package of measures that also includes targeted longer-term refinancing operations.

The decision subject to incoming data confirming the Governing Council’s medium-term inflation outlook, the monthly pace of the net asset purchases will be reduced to €15 billion until the end of December 2018 and that net purchases will then end.

The Governing Council also intends to maintain its policy of reinvesting the principal payments from maturing securities purchased under the APP for an extended period of time after the end of the net asset purchases, and in any case for as long as necessary to maintain favorable liquidity conditions and an ample degree of monetary accommodation.

Chart by ECB

in June, ECB has decided hold the interest rates on Thursday. Previous monthly purchases were conducted at average paces of €60 billion from March 2015 until March 2016, €80 billion from April 2016 until March 2017, and €60 billion from April 2017 to December 2017

The central bank said it will also remove its crisis-era stimulus program by the end of this year, a decade after the start of the euro zone’s economic downturn.

In the latest monetary stance of ECB, the president Mario Draghi stated, since the start of APP in January 2015, the Governing Council has made net asset purchases under the APP conditional on the extent of progress towards a sustained adjustment in the path of inflation to levels below, but close to, 2 percent in the medium term.

He continued, as a result Euro-system staff’ assessment, the Governing Council concluded that progress towards a sustained adjustment in inflation has been substantial so far.

in the last meeting, th Governing Council decided to keep the interest rates unchanged and expect to remain at their present levels at least through the summer of 2019 and in any case for as long as necessary to ensure that the evolution of inflation remains aligned with our current expectations of a sustained adjustment path.

Draghi’ said, in any event, the Governing Council stands ready to adjust all of its instruments as appropriate to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner.

Based on ECB data, quarterly real GDP growth moderated to 0.4 percent in the first quarter (1Q) of 2018, following growth of 0.7 percent in the previous quarters. This moderation reflects a pull-back from the very high levels of growth in 2017, compounded by an increase in uncertainty and some temporary and supply-side factors at both the domestic and the global level, as well as weaker impetus from external trade.

The latest economic indicators and survey results are weaker, but remain consistent with ongoing solid and broad-based economic growth. “Our monetary policy measures, which have facilitated the deleveraging process, continue to underpin domestic demand.”

Private consumption is supported by ongoing employment gains, which, in turn, partly reflect past labour market reforms, and by growing household wealth. Business investment is fostered by the favorable financing conditions, rising corporate profitability and solid demand.

Housing investment remains robust. In addition, the broad-based expansion in global demand is expected to continue, thus providing impetus to euro area exports.

This assessment is broadly reflected in the June 2018 Euro system staff macroeconomic projections for the euro area. These projections foresee annual real GDP increasing by 2.1 percent in 2018, 1.9 percent in 2019 and 1.7 percent in 2020.

Compared with the March 2018, ECB staff macroeconomic projections, the outlook for real GDP growth has been revised down for 2018 and remains unchanged for 2019 and 2020.

The risks surrounding the euro area growth outlook remain broadly balanced. Nevertheless, uncertainties related to global factors, including the threat of increased protectionism, have become more prominent. Moreover, the risk of persistent heightened financial market volatility warrants monitoring.

Looking ahead, underlying inflation is expected to pick up towards the end of the year and thereafter to increase gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion, the corresponding absorption of economic slack and rising wage growth.

This assessment is also broadly reflected in the June 2018 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 1.7 percent in 2018, 2019 and 2020. Compared with the March 2018 ECB staff macroeconomic projections, the outlook for headline HICP inflation has been revised up notably for 2018 and 2019, mainly reflecting higher oil prices.

In order to reap the full benefits from our monetary policy measures, other policy areas must contribute more decisively to raising the longer-term growth potential and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential.

Regarding fiscal policies, the ongoing broad-based expansion calls for rebuilding fiscal buffers. This is particularly important in countries where government debt remains high. All countries would benefit from intensifying efforts towards achieving a more growth-friendly composition of public finances.

A full, transparent and consistent implementation of the Stability and Growth Pact and of the macroeconomic imbalance procedure over time and across countries remains essential to increase the resilience of the euro area economy. Improving the functioning of Economic and Monetary Union remains a priority. The Governing Council urges specific and decisive steps to complete the banking union and the capital markets union.

Email: linda.silaen@theinsiderstories.com

 

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