The European Central Bank made its first significant change to its forward guidance in many months Thursday, dropping its bias toward lower interest rates in a move that came as little surprise given the pickup in eurozone growth since the start of the year. But in a shortened news conference, ECB President Mario Draghi made it clear the shift didn't mark the start of a move to reduce the stimulus provided by policy makers, stressing that changes in the jobs market were keeping wage increases lower than would be needed to ensure the inflation rate rises to the bank's target level of just below 2% and stays there. Here are five takeaways:
1. Forward Guidance. Before Mr. Draghi spoke, the ECB issued a statement in which it said that its key interest rates would "remain at their present levels for an extended period of time," dropping a reference to the possibility that they could be lowered. But it retained its reference to increasing its bond-purchase program in both size and duration should conditions worsen. Mr. Draghi said policy makers had removed "some of our easing biases" because the risk of severe setbacks that could lead to deflation had been eliminated.
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2. Forecasts. Mr. Draghi gave a more upbeat assessment of the eurozone's growth prospects. The ECB's economists raised their forecasts for gross domestic product growth and now see output rising by 1.9% in 2017, 1.8% in 2018 and 1.7% in 2019. In each case, the forecast rate is a 10th of a percentage point higher than expected in March. However, their projections for inflation moved in the opposite direction. They cut their inflation forecast for this year to 1.5% from 1.7% and their forecast for 2018 to 1.3% from 1.6%, in each case below the ECB's target of just below 2%.
3. The Jobs Market. Mr. Draghi explained that one of the reasons stronger growth isn't translating into higher inflation is a changed jobs market. He once again claimed some credit for the creation of five million new jobs over recent years, but went on to describe them as being of lower quality than in the precrisis years. "Many of these new jobs are so-called low-quality jobs," he said. "We're talking about temporary employment, part-time employment."
4. The Discussion. Mr. Draghi said there was a consensus among the 25 members of the governing council in favor of the change in guidance, but that no discussion had taken place around the means and timing of a reduction in stimulus. "There wasn't any discussion on normalization," he said.
5. The Reaction. The euro slipped against the U.S. dollar after the ECB lowered its inflation forecasts and Mr. Draghi made it clear any change in policy is some way off.
Write to Paul Hannon at email@example.com
(END) Dow Jones Newswires
June 08, 2017 11:26 ET (15:26 GMT)