ECB to start raising rates ‘in second half of 2019’
The ECB is still likely to start raising interest rates in the second half of 2019 even as Mario Draghi stopped short of declaring it will meet its inflation goal any time soon, a leading economist has said.
Philip O’Sullivan, chief economist at Investec Ireland, said that though Mr Draghi had pushed up growth forecasts for the eurozone he had indicted inflation would not hit its 2% target in 2020.
But in anticipation of rising inflation, “we are still confident that the next rise in Irish borrowing costs will be in the second half of 2019”, Mr O’Sullivan said.
Mr Draghi made the comments following a key Frankfurt meeting of the central bank on the same day that the Bank of England met to announce it would be keeping its interest rates unchanged, and a day after the US central bank increased its interest rates.
The ECB president unveiled updated economic projections that showed continued growth over the next three years but only slowly improving consumer-price gains. Inflation will average 1.7% in 2020, below the goal of just under 2%. ECB kept interest rates and their quantitative-easing settings unchanged.
The governing council’s discussion “reflected the increasing confidence that we have in the convergence of inflation towards a self-sustained path in the medium term,” Mr Draghi said, adding that an “ample degree” of stimulus is still needed. “Domestic price pressures remain muted overall and have yet to show convincing signs of a sustained upward trend,” he said.
The euro fluctuated after the decision and Mr Draghi’s remarks, though it was little changed against sterling and the dollar. The ECB will halve asset purchases to €30bn a month starting in January and continue for at least nine months until the end of September.
The ECB chief’s caution comes amid a spate of Central Bank decisions in the past 24 hours that signalled tighter global monetary policies ahead. The US Federal Reserve announced its third interest-rate increase of the year, China unexpectedly edged borrowing costs higher, and Norway’s central bank signalled that it may start raising interest rates earlier than previously indicated. The Swiss National Bank predicted inflation will exceed its mandate in late 2020, though said it won’t rush to raise rates.
