News Column

No Eurozone rate cut as Draghi plays down fears of deflation

February 7, 2014


THE EUROZONE will not tip into deflation, European Central Bank boss Mario Draghi said yesterday, defying the monetary policy doves who had called for him to cut interest rates again.

Inflation in the Eurozone has fallen to 0.7 per cent in the year to January, well below the target of below but near to two per cent. However, Draghi said there was still no need to cut interest rates further in a bid to push inflation up.

Under current policies "we are now experiencing a prolonged period of low inflation, which will be followed by a gradual upward movement towards inflation rates below, but close to, two per cent later on," Draghi said. He added that there are some benefits to the current situation as deflation in the peripheral economies and inflation in the core of the Eurozone means prices are adjusting relative to each other across the currency union.

Analysts predicted Draghi will be forced to reassess this view.

"Strong disinflationary pressure is likely to persist or even get stronger in the coming months which should force the ECB to again revise down its inflation projections next month, including for the first time 2016 figures," said Barclays'Philippe Gudin.

THE FORUM: Pages 16 & 17 ages

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Source: City A.M. (UK)

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