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ECB cuts inflation and growth forecasts ECB cuts inflation and growth forecasts
(about 1 hour later)
The European Central Bank has cut its inflation and growth forecasts for 2015 and the next two years. The European Central Bank (ECB) has cut its inflation and growth forecasts for 2015 and the next two years.
The bank expects inflation in the eurozone to remain "very low" for some years as threats to economic growth increase. It expects inflation in the eurozone to remain "very low" for some years as threats to economic growth increase.
Mario Draghi said it expected inflation to be 0.1% for 2015, rising to 1.5% in 2016 and 1.7% in 2017, dampened by lower energy prices. ECB president Mario Draghi said the bank expected inflation to be 0.1% for 2015, rising to 1.5% in 2016 and 1.7% in 2017, dampened by lower energy prices.
He was speaking after the ECB kept its main interest rate on hold at 0.05%.He was speaking after the ECB kept its main interest rate on hold at 0.05%.
The ECB chief also admitted that inflation could turn negative in the coming months. Mr Draghi also admitted that inflation could turn negative in the coming months.
Mr Draghi said that Europe's economic recovery would continue, "albeit at a somewhat weaker pace than expected", amid concern about the fallout from China's economic slowdown. The ECB made no change to its bond-buying programme, but Mr Draghi said it could be extended beyond its planned conclusion in September 2016 if necessary.
Europe's economic recovery would continue "albeit at a somewhat weaker pace than expected", Mr Draghi said, amid concern about the fallout from China's economic slowdown.
Outlook worsens
The ECB now forecasts eurozone economic growth of 1.4% in 2015, down from 1.5%, and 1.7% in 2016, compared with its previous projection of 1.9%.The ECB now forecasts eurozone economic growth of 1.4% in 2015, down from 1.5%, and 1.7% in 2016, compared with its previous projection of 1.9%.
The ECB made no change to its bond-buying programme. However, Mr Draghi said that risks to the outlook for economic growth and inflation had worsened since mid-August when the latest projections were calculated.
It also kept the rate for bank overnight deposits on hold at minus 0.2%, which means banks must pay to hold funds at the central bank. "Lower commodity prices, a stronger euro, a somewhat lower growth, have increased the risk to a sustainable path of inflation towards 2%," he told a news conference in Frankfurt.
The ECB also maintained its emergency overnight borrowing rate for banks at 0.3%. The euro fell sharply following Mr Draghi's comments, dropping a cent against the dollar to $1.1127.
The central bank also kept the rate for bank overnight deposits on hold at minus 0.2%, which means banks must pay to hold funds at the central bank.
'Unspectacular' growth
Earlier on Thursday, a survey indicated that activity among eurozone businesses rose at the fastest pace for more than four years in August.Earlier on Thursday, a survey indicated that activity among eurozone businesses rose at the fastest pace for more than four years in August.
The composite purchasing managers' index (PMI) compiled by Markit rose to 54.3 last month, up from July's figure of 53.9. A figure above 50 indicates expansion.The composite purchasing managers' index (PMI) compiled by Markit rose to 54.3 last month, up from July's figure of 53.9. A figure above 50 indicates expansion.
Markit chief economist Chris Williamson said the PMI results suggested that the eurozone's economy would grow by 0.4% in the third quarter of the year, which he called "a solid - albeit unspectacular - rate of expansion".Markit chief economist Chris Williamson said the PMI results suggested that the eurozone's economy would grow by 0.4% in the third quarter of the year, which he called "a solid - albeit unspectacular - rate of expansion".
Eurostat said on Thursday that eurozone retail sales rose by 0.4% in July compared with June, roughly in line with expectations and considerably better than the 0.2% decline in June.Eurostat said on Thursday that eurozone retail sales rose by 0.4% in July compared with June, roughly in line with expectations and considerably better than the 0.2% decline in June.
Consumer confidence appeared to be particularly strong in Germany, Europe's biggest economy, where retail sales jumped by 1.4% last month.Consumer confidence appeared to be particularly strong in Germany, Europe's biggest economy, where retail sales jumped by 1.4% last month.