Trump tariff proposal a dangerous move: ECB chief

Eileen GuzmanMar 11, 2018

European Central Bank chief Mario Draghi raised concerns today about the state of global relations after US President Donald Trump sparked fears of a trade war with his threat to impose punitive tariffs on steel and aluminium imports.

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 will remain unchanged at 0.00%, 0.25% and -0.40% respectively. Economists largely predicted no change in guidance this month, expecting instead to have to wait until June to receive a clearer indication. That was seen as a step toward ending the 30 billion euros ($37 billion) per month in bond purchases that pump newly printed money into the economy in an effort to support growth and inflation.

The ECB also repeated that its bond purchase program will continue as planned.

The Euro initially surged in the wake of the meeting at the European Central Bank dropped its easing bias from its policy statement, signalling to many that it was taking steps towards normalising monetary policy.

A stimulus exit would likely send interest rates and the euro higher. Markets are also awaiting further news on plans for USA tariffs on some imported goods. A full, transparent and consistent implementation of the Stability and Growth Pact and of the macroeconomic imbalance procedure over time and across countries remains essential to increase the resilience of the euro area economy.

Draghi said economic growth in the eurozone is improving faster than the bank had anticipated, leading it to nudge up its 2018 growth forecast to 2.4% from 2.3%. And at this stage in the economic cycle, growth can become fragile very quickly.

Mr Draghi leveled pointed criticism of US President Donald Trump's plans for more trade tariffs.

To assess what kind of market reaction we see from the data, we should consider first why it matters rather than what degree of surprise the data reports. "We need confidence, persistence and patience", he said.

However a change in the ECB's policy statement appeared to suggest that policymakers are becoming more hawkish in their outlook.

The S&P 500 Index gained for the fourth time in five days as the president readied Thursday afternoon to sign orders for levies on steel and aluminum imports that are said to spare some trade partners and take effect in 15 days.

Wall Street stocks were also higher in late morning trade, with the Dow up 0.2%.

But it was on the path of policy tightening that Draghi dialled back the most on. The headline consumer price inflation projection was unchanged at 1.4 percent for 2018, while 2019's forecast was revised down a bit to 1.4 percent and kept unchanged at 1.7 percent for 2020.

Markets interpreted the message as dovish as Draghi elaborated on the risks to the outlook in his press conference.

US crude fell 0.93 percent to $60.58 per barrel and Brent was at $64.03, down 0.48 percent.

U.S. inflation is set to be released on Thursday afternoon at 12:30pm and this will be watched by investors as it could give future direction to how many interest rates hikes to expect this year.

Half an hour before the close of trade on Thursday, the EuroStoxx 50 was up 1.05% at 3,415.

In Europe: Stoxx 50 +1.1%, FTSE +0.6%, CAC +1.3%, DAX +0.9%.

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