ECB holds interest rates and slashes growth forecasts

The European Central Bank has decided to keep interest rates unchanged at 0.05 per cent and downgraded its inflation and growth forecasts.

In the bank’s meeting in Frankfurt today, ECB boss Mario Draghi said weaker commodity prices, a rout in global equities and China’s slowdown continue to be the main barriers to a recovery in consumer prices.

The increasing uncertainty of events in emerging markets, which have weighed on global growth and demand for euro exports, have also forced the ECB to revise down its growth outlook.

The new growth assessment foresees annual real GDP increasing by 1.4 per cent in 2015, instead of 1.5 per cent announced in June, 1.7 per cent instead of 1.9 per cent in 2016 and 1.8 per cent instead of 2 per cent in 2017.

Inflation will also remain “very low” in the near term due to lower oil prices, Draghi said.

The central bank has forecast inflation at 0.1 per cent in 2015 and 1.1 per cent and 1.7 per cent for 2016 and 2017 respectively.

Draghi said: “Overall, we expect the economic recovery to continue, albeit at a somewhat weaker pace than earlier expected.

“Domestic demand should be further supported by our monetary policy measures and their favourable impact on financial conditions, as well as by the progress made with fiscal consolidation and structural reforms.

“However, economic growth in the euro area is likely to continue to be dampened by the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms.”