European Central Bank still confident despite slower growth

Draghi Faced Nowotny Plea to Discuss ECB Policy

Draghi Faced Nowotny Plea to Discuss ECB Policy

The deposit rate, now the bank's primary interest rate tool, will remain at -0.4% while the main refinancing rate will be unchanged at 0%.

The admission prompted a German journalist in the audience to question the president on "why monetary policy had not been discussed.in a monetary policy meeting", to which Draghi said that the European Central Bank first required a better understanding of the underlying trends since the start of the new year before formulating future policy.

Early hints a slowdown could be coming for the single currency's 19-member nations after a year of unexpectedly muscular growth also stayed policymakers' hands.

A year ago was the strongest in a decade for economic growth in the euro zone, but a recent slump in investor sentiment since the start of 2018 could threaten the ECB's inflation outlook.

Concerns about protectionist threats, geopolitical risks and global trade tension have added to doubts about the strength of the eurozone recovery.

"The Eurosystem will continue to reinvest the principal payments from maturing securities purchased under the asset purchase program for an extended period of time after the end of its net asset purchases, and in any case for as long as necessary", Draghi said.

"The bottom line is. caution in reading these developments, caution tempered by an unchanged confidence in convergence of inflation to our inflation aim", he said.

Lower interest rates and QE are created to pump cash through the financial system and into lending to firms and households - powering economic growth and inflation.

Business sentiment has already taken a hit, particularly in export-focused Germany, and a full-fledged trade war could quickly hurt growth - a risk already highlighted by policymakers at the ECB's March meeting.

Draghi said that some causes could be temporary, such as weather, strikes or calendar effects like the timing of Easter.

With Thursday's decision, the ECB's rate on bank overnight deposits, which is now its primary interest rate tool, remains at -0.40 percent.

Economists polled by Reuters ahead of the meeting expected bond purchases to end this year after a short taper and to see the first rate increase in the second quarter of 2019.

Price growth stood at 1.3 percent in March, and central bank forecasts call for it to reach just 1.7 percent by 2020.

He said it could be that the exceptionally strong growth of past year is returning to a more normal pace and that the bank would have to study incoming data more. Years of stimulus have sent stock and bond markets higher and central bankers are at pains to move carefully as they halt or withdraw stimulus to avoid market turbulence.

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