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Eurozone slowdown shows signs of easing: Lagarde

ECB president says there are 'some initial signs of stabilisation' and a 'mild increase in underlying inflation'

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Ms Lagarde says that she does not favour one monetary stance over another, but simply aims to make sound decisions for the eurozone.

Frankfurt

CHRISTINE Lagarde said the eurozone's economic slowdown is showing tentative signs of bottoming out, sending the single currency higher as she spoke after her first policy meeting as president of the European Central Bank.

There are "some initial signs of stabilisation" and a "mild increase in underlying inflation", she told reporters on Thursday.

She repeated that risks to growth remain on the downside but said they are "somewhat less pronounced".

The euro jumped as high as US$1.1154 before paring gains to trade up 0.1 per cent at US$1.1142 at 2.55 pm Frankfurt time.

Still, Ms Lagarde unveiled updated economic forecasts that show the outlook remains muted for now.

Growth will be 1.1 per cent next year - a slight revision lower - and 1.4 per cent in 2021, the bank predicted.

The first outlook for 2022 showed an expansion of 1.4 per cent that year. Inflation is seen at 1.6 per cent in 2022 - still below the goal of just under 2 per cent.

The Governing Council earlier held its deposit rate at a record-low minus 0.5 per cent, and bond purchases at 20 billion euros (S$30 billion) a month, sticking to a controversial package unveiled in September.

Ms Lagarde also pledged the central bank's first strategic review since 2003, giving it an opportunity to assess whether the inflation goal needs to be adjusted.

On Thursday, she said such a review is "overdue" and she aims to start it in January, completing it before the end of the year.

It needs to be "comprehensive" and include consultation with members of the European Parliament, the academic community and representatives of civil society, she said.

She added that there is no "preconceived landing zone" but it will address challenges including climate change, technology, and rising inequality.

The review "needs to look at all and every issue, needs to turn every stone and will take its time - but will not take too much time", Ms Lagarde said.

"It will aim at not just preaching the gospel that we think we mastered but also at listening to the views of those to whom we reach out," she added, promising that it would also include the "immense challenges" posed by inequality and climate change.

Her plans have worried some officials, who fear being diverted from their primary mandate of restoring price stability. Inflation has averaged just 1.2 per cent so far in 2019, despite years of unprecedented and often contentious stimulus.

Moreover, while some economic indicators have suggested lately that the bloc's slowdown might be easing, Germany remains embroiled in its worst manufacturing slump in a decade, and the US-China trade war and Brexit have continued to weigh on growth.

The subdued outlook raises questions over whether the central bank has enough monetary ammunition left.

Even officials most supportive of stimulus have signalled a reluctance to cut the deposit rate deeper below zero, and Ms Lagarde herself again warned about detrimental side effects such as financial bubbles, squeezes on bank profitability and discontent among savers.

The new ECB chief said that she does not favour one monetary stance over another, but simply aims to make sound decisions for the eurozone.

"Once and for all, I'm neither a dove nor a hawk, and my ambition is to be this owl, that is often associated with a little bit of wisdom," she said.

"I'm not full of vanity, but I will certainly try to bring the best out of members of my governing council in order to arrive at monetary decisions and use of instruments that will be as consensual as possible." BLOOMBERG, REUTERS