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ECB has policy options left, but inflation outlook unchanged
[FRANKFURT] The European Central Bank still has policy options left at its disposal, according to a majority of economists in a Reuters poll, who also said President Mario Draghi has not lost his knack for influencing financial markets.
Thirty-five of 44 economists polled this week answered "No" when asked if the ECB had effectively depleted its monetary policy arsenal.
This follows Draghi's most aggressive policy easing ever, cutting all three key interest rates and making the deposit rate more negative, as well as increasing monthly bond purchases by a third and introducing new incentives for banks to loan money .
Asked what else the ECB could do, most economists said more of the same. It could increase monthly bond buying, buy various other kinds of debt and take interest rates deeper into negative territory - even though virtually no evidence exists that such policies have helped to boost inflation, currently negative, to the ECB's target of just below 2 per cent.
Just one-third of economists who answered another question said Draghi's influence on markets had waned, but as a whole they have barely changed their outlook for growth and inflation over the next two years compared with last month.
It is a common problem facing many economies. "Monetary policy is still doing pretty much all of the heavy lifting as many of the economies have already stretched themselves on the fiscal front," said Radhika Rao, economist at DBS Bank. "While more action is likely, financial markets and demand conditions have grown immune to the plethora of measures." Some of the largest banks such as Deutsche Bank, Goldman Sachs and JPMorgan have steadily lowered their 2016 growth predictions for the eurozone over the past six months, even as the ECB ramped up its stimulus.
The most optimistic outlook for 2017 growth was just one-tenth of a percentage point higher compared with the last survey.
Euro zone economic growth is expected to be a lacklustre 0.4 per cent in each quarter until mid-2017, unchanged from last month's poll.
For all this year, it is expected to average 1.5 per cent, down from 1.6 per cent in February's poll. The highest call of 1.9 percent is unchanged since last month.
Economists stuck to their view that inflation will remain tepid through this year and next.
For 2016, inflation is expected to average just 0.3 per cent - the lowest consensus expectation since polling on the period began two years ago. Next year, inflation is likely to average 1.4 per cent, similar to February's survey.