European Central Bank chief tamps down optimism
FRANKFURT, Germany — The president of the European Central Bank issued a sober assessment of the eurozone economy, saying Thursday that he was “very, very cautious” about prospects for growth and acknowledging concern about shock waves from the civil war in Syria.
“I can’t share the enthusiasm” about budding growth in the eurozone, Mario Draghi, the bank president, said at his monthly news conference. “These shoots are still very, very green.”
The central bank kept its benchmark interest rate at a record low of 0.5 percent Thursday, which had been expected after recent economic indicators showed the eurozone economy was beginning to recover, albeit weakly. But Draghi said the bank had not ruled out future rate cuts.
“We certainly are alert to the geopolitical risks that may come from the Syrian situation,” he added.
Draghi’s remarks were unexpectedly pessimistic and could dampen the hopes of some economists and political leaders that the eurozone is finally improving, after a stubborn recession that has pushed unemployment to more than 25 percent in Spain and Greece.
The central bank also revised its forecast for eurozone growth in 2014 to 1 percent from 1.1 percent.
The bank may not welcome undue optimism about the eurozone economy because it could cause market interest rates to rise and make credit even more unaffordable for the businesses and households in Southern Europe that need it most.
“Mr. Draghi believes investors are jumping the gun on the state of the eurozone economy and is providing a reality check in an effort to talk down market rates,” Nicholas Spiro, managing director of Spiro Sovereign Strategy, said by email.
European stocks rose and the dollar reached a six-week high against the euro while Draghi spoke, as investors took his words as a sign the bank would keep interest rates low.
On Thursday in Britain, which does not use the euro currency, the Bank of England also held interest rates at a record low, as policymakers there, too, were reluctant to celebrate tentative signs of an economic recovery.
Draghi indicated that the bank’s Governing Council, which held its monthly monetary policy meeting Thursday, had not ruled out further cuts in the benchmark interest rate. During the debate Thursday, he said, some members argued against a cut because of signs of better growth, while others noted that growth remained tentative.