(MENAFN- The Peninsula) Mario Draghi has put investors on a month's notice for further economic stimulus after outlining the ingredients necessary for action
The European Central Bank president cited next week's snapshot of euro-area economic growth and the need to better assess the inflation outlook as critical for whether policymakers take "decisive" steps when they reconvene to set monetary policy in March. He spoke to reporters after the Frankfurt-based central bank left its benchmark interest rate at a record-low 0.25 percent
The ECB is setting up a month of data scrutiny as officials weigh up whether deteriorating price pressures are sufficient to merit fresh aid or a stabilization in money markets and signs of an economic pickup mean the current ultra-loose monetary stance is working. This month's policy pause was enough to prompt the euro's biggest gain in two weeks
"The ECB continues to look at all policy options, but does not seem to have decided on a particular course of action yet," said Elga Bartsch, chief European economist at Morgan Stanley, who predicts a rate cut in March
Waiting a month also allows breathing space to assess the selloff in emerging-market currencies and for the ECB to compile its latest macro-economic forecasts. Draghi said that officials will for the first time look ahead two years by providing inflation and growth estimates for 2016
"It is not too hard to imagine that the key reason for delay was the decision to wait for one month to think some more about the inflation outlook in 2016 before taking a decision, or perhaps to make sure that the decision is consistent with that outlook," said Richard Barwell, senior European economist at Royal Bank of Scotland Group, who predicted the ECB would cut rates
The central bank held fire even after a month which saw a an unexpected slowdown in euro-area inflation and a slump in the emerging markets that have bolstered the region's exports. Consumer prices rose 0.7 percent in January from a year earlier, less than half the ECB's goal of just below 2 percent. Draghi rebutted speculation the economy faces deflation, while reiterating his expectation for a prolonged period of subdued price pressures
At the same time, swings in interbank borrowing costs have eased and gauges of euro-area manufacturing and German business confidence are at the highest levels in 2 1/2 years, signalling that the economy is strengthening almost a year after it exited recession. The Eonia rate fell to 0.132 percent yesterday, the lowest level in a month, after rising as high as 0.359 percent on Jan. 20
"We are willing and we are ready to act," Draghi said, citing "the need to get more information" as a reason for maintaining the status quo. Acknowledging a broad discussion over what to do next, Draghi indicated that ending the absorption of crisis-era bond purchases was one option. Other possibilities include issuing fresh long-term loans to the region's banks
The most likely outcome when officials meet again on March 6 is a rate cut, said Ralph Solveen, an economist at Commerzbank in Frankfurt. David Mackie, chief European economist at JPMorgan Chase, predicted the ECB will stand pat. Initial data on euro-area gross domestic product for the fourth quarter will be released on February 14. The economy probably expanded 0.3 percent, according to the median estimate of six economists surveyed by Bloomberg News
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