ECB to wait for June measures to bite as inflation stays low

Mon Jun 30, 2014 7:09am EDT
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By Martin Santa and Eva Taylor

BRUSSELS/ FRANKFURT (Reuters) - Euro zone inflation remained stuck at levels last seen during the 2009 recession and lending to companies and households contracted again, data showed on Monday, further highlighting the bloc's feeble economic state.

The reports - for June and May, respectively - underlined the reason for the European Central Bank's unprecedented policy steps earlier in June when it cut interest rates to record lows and promised to hand out more long-term loans to encourage banks to lend more freely.

It will take a while for the measures to take effect and they would not have influenced Monday's releases. Details have not yet been announced for the long-term loans and most economists do not expect any fresh policy steps when the ECB meets on Thursday.

But there is no sign that the pressure on the ECB is easing.

"The ECB has just announced new measures to signal its readiness to bring inflation back to target and boost lending, but it will surely keep the door wide open to more measures at this week's meeting," said Berenberg Bank's Christian Schulz.

Annual euro zone inflation stayed at 0.5 percent in June compared with last month, the European Union's statistics office Eurostat said on Monday. Core annual inflation - excluding energy, food, alcohol and tobacco - inched up to 0.8 percent.

This was slightly unexpected after annual inflation in Germany rebounded to 1.0 percent in June, which Berenberg's Schulz said suggested "a widening of the range of inflation rates between the core and the periphery".

Overall, euro zone inflation remains far below the ECB's medium-term target of just below 2 percent and has been stuck in what ECB President Mario Draghi has called the "danger zone" of below 1 percent for nine months in a row.   Continued...

European Central Bank (ECB) President Mario Draghi addresses the monthly ECB news conference in Frankfurt November 7, 2013. REUTERS/Ralph Orlowski