Updates with euro in eighth paragraph. For more on European debt, click here.)
March 6 (Bloomberg) -- Mario Draghi may have all the information he needs to do nothing on interest rates.
A month after saying he needs more data to make a decision, stronger-than-expected output and inflation and rising economic confidence might spare the European Central Bank president for now from radical steps such as negative rates. With 40 out of 54 economists in a Bloomberg News survey predicting no change in the benchmark rate, attention has turned to whether Draghi will instead roll out plans to boost liquidity or stimulate lending.
Draghi has limited room left to steer the 18-nation currency bloc away from deflation, as the ECB’s key rate is just a quarter percentage point above zero. While other measures are on the table, including the release of cash linked to crisis-era bond purchases, his main scenario is to let the gradual recovery erode idle productive capacity and boost prices.
“For now, the deflationary threat is insufficient” for the ECB to use its strongest measures, said Elwin de Groot, senior market economist at Rabobank in Utrecht, Netherlands. “We could well see a repeat of February, with ECB President Draghi adding more items to his checklist, and removing a few others, in order to buy extra time. However, it will be a very close call.”
More Information
The ECB will announce its interest-rate decision at 1:45 p.m. in Frankfurt and Draghi will hold a press conference 45 minutes later. The Bank of England will probably keep its benchmark rate at a record-low 0.5 percent at 12 p.m. in London, while its bond-purchase plan will stay at 375 billion pounds ($627 billion), according to separate Bloomberg surveys.
When Draghi said last month that policy makers “need to acquire more information” to analyze the “complexity of the situation” in the euro-area economy, his watch list included four bullet points: growth data from the end of last year, the impact of turbulence in emerging markets, credit supply to companies and households, and new economic forecasts prepared by the ECB’s staff.
While the recovery remains fragile, data in the past four weeks have been encouraging. Gross domestic product in the bloc grew 0.3 percent in the fourth quarter, more than economists predicted, bolstered by stronger expansions in Germany, France and the Netherlands and a return to growth in Italy. Economic sentiment rose to the highest level in more than 2 1/2 years in February, and services and manufacturing expanded the most since June 2011.
Returning Confidence
The euro has gained almost 1 percent in the past month and was at $1.3729 at 8:21 a.m. Frankfurt time, little changed on the day. Overnight borrowing costs in the euro area, a signal of tension in financial markets, have stabilized since rising above the ECB’s benchmark rate for four consecutive days in January.
In a sign that confidence is returning to developing nations, the MSCI Emerging Marketsstock index rebounded 3.2 percent in February after slumping 6.6 percent the prior month.
Draghi told European Parliament lawmakers in Brussels on March 3 that officials are seeing progress in lending as a slump in credit eases and surveys signal an improvement in loan demand.
The ECB’s updated projections for euro-area growth and inflation will be released today, including forecasts for 2016 that extend the central bank’s outlook to three years for the first time.
Inflation Outlook
“Activity numbers are actually picking up quite decently and the ECB is likely to revise up its GDP forecast at least for this year,” said Anders Svendsen, an economist at Nordea Bank Denmark A/S in Copenhagen. “Yes, inflation is low and will remain low for a long time, but this is not new to the ECB, and inflation is probably very close to bottoming out.”
News Source: www.sfgate.com
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