The European Central Bank said downside risks to the economic outlook have increased.
“Economic growth in the euro area remains weak, with heightened uncertainty weighing on confidence and sentiment, giving rise to increased downside risks to the economic outlook,” the Frankfurt-based ECB said in its monthly bulletin today, echoing President Mario Draghi’s June 6 policy statement. “The Governing Council will monitor further developments closely and ensure medium-term price stability for the euro area by acting in a firm and timely manner.”
While the ECB last week held its benchmark interest rate at 1 percent, Draghi said “a few” policy makers called for a cut, fueling speculation the bank could act as soon as next month as the sovereign debt crisis curbs growth and damps price pressures. Greece holds elections on June 17 that may hand power to parties opposed to the country’s bailout conditions and trigger its exit from the monetary union.
At the same time, euro-area inflation remains above the ECB’s 2 percent limit.
“While inflation rates are likely to stay above 2 percent for the remainder of 2012, over the policy-relevant horizon the Governing Council expects price developments to remain in line with price stability,” the ECB said in today’s bulletin.