European Central Bank monetary stimulus still needed to push up inflation -Draghi

ECB Meeting: Coverage and Reactions of the Euro Exchange Rate Complex

European Central Bank (ECB) chief Mario Draghi warned on Thursday (25 January) that U.S. support for a weaker dollar was fuelling market instability. "I think we are due for a rebound".

As widely expected, the ECB kept interest rates and guidance unchanged at its policy meeting, with investors focusing on comments from ECB President Mario Draghi in a subsequent press conference.

Though comments on Thursday that he wanted a "strong dollar" contradicted earlier comments by Treasury Secretary Steven Mnuchin, investors suspect a protracted decline in the greenback may be likely.

Wanting to keep all options on the table, Draghi is likely to signal a concern about the rapid rise in the currency but will maintain that it is not a policy target, hoping to strike a balanced message until policymakers are ready to unveil their blueprint for winding down stimulus, economists said.

Christine Lagarde, managing director of the International Monetary Fund, has called on Mnuchin to clarify his comment after the dollar plumbed new lows.

The value of the euro rose above $1.25 during Mr Draghi's conference after he pointed to growing confidence that inflation would meet its 2pc target.

ECB Meeting: Coverage and Reactions of the Euro Exchange Rate Complex

Still, Draghi noted that domestic price pressures remain muted overall and have yet to show convincing signs of a sustained upward trend.

He added that it would therefore require monitoring.

"They (measures of underlying inflation) are expected to rise gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion, the corresponding absorption of economic slack, and rising wage growth", he said.

"Besides Governor (Jerome) Powell as the new chair, significant turnover in Fed leadership is widely expected, but we do not expect this to cause a material change in the near-term trajectory of monetary policy". At today's meeting, the Governing Council of the European Central Bank decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility should remain unchanged - 0.00%, 0.25% and -0.40%, respectively. "They are important for growth and price stability". And the European Central Bank maintained that rates will remain at the present level well beyond the horizon of the net asset purchases.

The bank says it will continue its 30 billion euros ($36 billion) in monthly bond purchases at least until September. The Treasury secretary also said that he is considering a trip to China later this year for discussions on how to shrink America's trade deficit with that country. But the ECB's governing council meeting in Frankfurt will bring another round in the battle over how quickly to wind down mass bond-buying and ultimately raise interest rates. There was also no change in the wording of the forward guidance, contrary to market expectations.

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