ECB Guidance Is Not Tilted Toward Rate Hike

They were painted on occasion of the upcoming

"The market believes Draghi's take on inflation is wishful thinking", said Christoph Rieger, head of fixed-rate strategy at Commerzbank AG, which predicts the European Central Bank will cut the deposit rate toward the end of this year and extend its low-rate pledge to mid-2021.

Analysts said the ECB's decision reflects concerns over the developing trade war between the United States and China and its potential to undermine the Eurozone's own worldwide trading prospects.

Mr Draghi told a news conference following the policy announcement that the decisions taken had been unanimous.

The move comes just days after the Reserve Bank of Australia (RBA) reduced the cost of borrowing to a historic low, cutting its rates to 1.25 percent amid slowing economic growth hitting levels not seen since the financial crisis.

Draghi laid out the latest set of European Central Bank quarterly economic forecasts, which called for growth of 1.2 percent and inflation at 1.3 percent this year, slightly higher than in its March predictions for the 19-nation eurozone.

He referred to the current growth expansion in the euro area (1.2% this year) and low unemployment level (7.6% in April).

The ECB's willingness to act came as the incoming economic data and survey information "point to somewhat weaker growth in the second and third quarters of this year", Draghi said.

The ECB also said on Thursday it will let banks borrow from it at rates just 10 basis points above its minus 0.4 per cent deposit rate provided they beat the ECB's lending benchmarks in a new targeted longer-term refinancing operation or TLTRO. The ECB does not see reasons for lower rates considering how low they've gone already.

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But Mr Draghi, whose term ends on Oct 31, is conscious that the ECB's policy arsenal is almost depleted after years of stimulus.

Economists polled by Reuters expect rates to stay unchanged and forecast a first rate hike only in 2021.

The decision, which was reached unanimously by the central bank's monetary policy committee, comes after not only a landslide win for Modi, but also a concerning slowdown in economic growth.

"Turning the QE taps back on by the end of the year is an increasingly probable scenario", said Nancy Curtin, Chief investment officer at Close Brothers Asset Management. In contrast, bets that the Fed will slash borrowing costs this year have risen since Powell signaled this week that he's open to easier policy as he watches global trade tensions.

"The biggest risk for the European Central Bank are the only weakly anchored inflation expectations", DIW's Fratzscher said.

Others proposed restarting the asset purchasing programme, finalised last December, while other members defended further monetary policy guidance, beyond the mid-2020 scenario.

The ECB's favoured gauge of market inflation expectations had earlier fallen to its lowest since 2016 while money market pricing showed investors see nearly a 70% chance of a 10 basis point cut in ECB rates by the end of the year.

Draghi is also expected to stick to his message that the economy's rebound is merely delayed and not derailed.

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