European Central Bank review: The words have changed but the tune remains the same

The world's biggest economies should reaffirm their pledge to reject competitive currency devaluations and protectionism, the head of the European Central Bank said on Thursday, after rumours this commitment could be watered down.

The FTSE 100 closed 0.27% lower, at 7,314, in London while the CAC 40 also slipped 0.30% in Paris, to settle at 4,958. The German two-year Schatz now trades at -0.85%, effectively meaning that customers pay for the privilege of lending money to the German government over the life of the bond.

According to its own calculations, the think tank expects an inflation rate of just below 2.0 percent in Germany and the 19-member euro area as whole for 2017, meaning that it would achieve "just what the doctor [the ECB] ordered", with the central bank's recommended annualized inflation rate defined as being little under 2.0 percent.

The TLTRO enables banks to trade in expensive debts for cheaper funding and has been particularly helpful for peripheral banks who have struggled with higher funding costs. It held its key short-term interest rate benchmark at zero, and maintained its rate on deposits from commercial banks at minus 0.4 percent.

"These will be reduced to EUR60 billion in April and, on current plans, will run at least until December 2017". The push up in inflation has been largely driven by energy prices, and the core inflation rate remains muted.

Last week, Eurostat, the European Union's statistics agency, reported that headline inflation in the eurozone in February accelerated to 2 per cent (nominally above the ECB's target) for the first time since January 2013.

Elsewhere, the euro hit a three-day high against the dollar of $1.0614, after ECB President Mario Draghi said the bank's effort to return the Eurozone to growth had been successful.

Markets took that as a hint monetary policy could tighten sooner than previously thought, sending the euro up 0.4pc against the dollar.

For ECB President Mario Draghi, it will be walking a tightrope.

Nevertheless, policymakers have so far suggested that the European Central Bank is only likely to begin discussing its next policy move in June, with the first actual move perhaps not coming until after German elections in September.

We assume any discussion on exiting from the current asset purchase programme to be postponed and Draghi to repeat that tapering was not discussed at the meeting. However, they project 1.7% inflation in 2019.

  • Eleanor Harrison