The European Central Bank raised its euro area growth and inflation forecasts for this year, while expressing concern over downside risks such as "Brexit", and reiterated its willingness to act when needed.
The latest ECB Staff macroeconomic projections unveiled by ECB President Mario Draghi in Vienna on Thursday showed an upward revision in the Eurozone inflation forecast for this year to 0.2 percent from 0.1 percent seen in March.
Inflation projections for next year and 2018 were retained at 1.3 percent and 1.6 percent, respectively.
The ECB targets inflation "below, but close to 2 percent".
On the basis of current futures prices for oil, inflation rates are likely to remain very low or negative in the next few months before picking up in the second half of 2016, Draghi said. The bank expects inflation to recover further in next two years.
The ECB raised the growth forecast for this year to 1.6 percent from 1.4 percent. The projection for next year was retained at 1.7 percent.
Meanwhile, the forecast for 2018 was cut to 1.7 percent from 1.8 percent.
"The risks to the euro area growth outlook remain tilted to the downside, but the balance of risks has improved on the back of the monetary policy measures taken and the stimulus still in the pipeline," Draghi said.
"Downside risks continue to relate to developments in the global economy, to the upcoming British referendum and to other geopolitical risks."
Earlier on Thursday, the 25-member Governing Council decided to leave all the three main interest rates of the bank unchanged for a second consecutive policy session. Previously, rates were lowered in March.
The central bank also announced that it will start making purchases under the corporate sector purchase programme, or CSPP, on June 8 and conduct the first operation in its new series of targeted longer-term refinancing operations, or TLTRO, on June 22. Both stimulus measures were announced in March.
Fielding questions from reporters', Draghi said the bank's asset purchase programme was proceeding smoothly and can be adjusted to meet the desired size. He also said the bank was against a revision of its inflation target in both directions.
In his customary post-decision press conference, Draghi said that interest rates are expected to remain "at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases".
"The economic recovery is gradually proceeding," Draghi said.
"Additional stimulus, beyond the impetus already taken into account, is expected from the monetary policy measures still to be implemented and will contribute to further rebalancing the risks to the outlook for growth and inflation."
Draghi also noted that the Eurozone economic recovery continues to be dampened by subdued growth prospects in emerging markets, the necessary balance sheet adjustments and a sluggish pace of implementation of structural reforms.
The ECB Chief also said that it was crucial to ensure that the very low inflation environment does not become entrenched in second-round effects on wage and price setting. The bank will act with tools available within its mandate, if warranted, he added.
He also stressed that other policy areas must contribute much more decisively to boost economic activity and support monetary policy. He also said that once structural reforms are implemented the time to achieve the inflation target will be shorter.
Responding to questions on Greece, Draghi said that no decision was made in the latest policy session on a waiver on accepting Greek government debt as collateral. The reinstatement of the waiver will be subjective to implementation of prior actions, he said.
Turning to the much discussed and feared "Brexit", Draghi said the ECB holds the view that the U.K. should remain in the EU, which will benefit both. The country is set to hold a referendum on its EU membership on June 23.
by RTT Staff Writer
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