Eurozone inflation rises to target as economy improves

Eurozone inflation rises to target as economy improves

ECB President Mario Draghi suggested that the election had no bearing on the bank's decision and that the subdued inflation outlook remained the main driver of policy.

Growth is meanwhile expected to accelerate more than earlier thought with 2017 growth now seen at 1.7 percent, above an earlier forecasts for 1.5 percent.

The eurozone economy grew by a relatively robust quarterly rate of 0.4 percent in the final three months of previous year, but unemployment remains elevated at 9.5 percent and annual inflation is still subdued at 1.5 percent. Battling for France's blue-collar vote and employing all of her political guile, far-right presidential candidate Marine Le Pen upstaged her centrist rival Macron by making a surprise campaign stop Wednesday to a home appliance factory threatened with closure.

"A very substantial degree of monetary accommodation is still needed", Draghi told a press conference in Frankfurt on Thursday, with data showing annual inflation still falling well short of the bank's target of just below 2%.

In the statement accompanying Thursday's decision, the ECB omitted any hint of when the bank might taper off its extraordinary support measures.

Forecasts are for Eurozone inflation to accelerate in April, which will certainly be Euro positive, defying Draghi's continued attempts to drag on the Euro, with this morning's 1 estimate GDP figures out of France and Spain mixed, the French economy slowing in the 1 quarter, whilst Spain's economy accelerated through the 1 quarter. That was further evidenced in a survey Thursday from the European Union's executive Commission that found economic sentiment in the eurozone near a ten-year high.

However, the European Central Bank does not seem to want to take any chances especially as unemployment remains elevated at 9.5 per cent.

The statement repeated past wording that indicates the central bank even "stands ready to increase" stimulus if the outlook for growth and inflation worsens. Analysts consider that wording a way of discouraging investors from speculating about the end of the stimulus - which might prematurely drive up market interest rates, blunting its intended benefits.

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The 60 billion euros ($65 billion) per month in bond purchases push newly printed money into the economy in an effort to boost inflation.

Bank of America Merrill Lynch analysts see continued gains for European equities in the next year, expecting the Stoxx Europe 600 index to rise to 420 from 387 now, a gain of around 8.5%, on improved earnings.

The eventual withdrawal of the stimulus will have a wide-ranging impact on businesses, governments, investors and consumers.

"The GDP data won't alter the view that the Fed may raise rates in June and then ultimately again in September", said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange Inc in Washington.

Overall, analysts think the European Central Bank will want to see several months of evidence that the economy is strong and inflation higher before committing to a plan to taper the stimulus.

The bank's forward guidance on interest rates, which now calls for borrowing costs to remain at present or lower levels for an extended period of time, had also not been discussed at the ECB governing council meeting.

The benchmark interest rate for Europe has been held at 0% since March 2016, with the lending rate held at 0.25% and the rates for deposits held at -0.40%. That is in essence a tax aimed at pushing banks to lend the money rather than leave it at the ECB's super-safe overnight deposit facility.

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