ECB Raises Eurozone Growth Forecasts, Trims Inflation Outlook

The European Central Bank has kept its main interest rate at 0% - but has slashed its predictions for how inflation will grow across the continent.

The ECB held Thursday's policy meeting in Tallinn, Estonia, one of the occasional meetings held away from the bank's Frankfurt headquarters. However, the central bank did surprise the markets by removing its guidance on rate cuts, saying that rates could remain at current levels for an extended period.

It also confirmed that it would continue with its €60bn per month asset purchase programme until at least the end of 2017 - and maintained the pledge to expand it if conditions deteriorate.

Governing council members made no change to language suggesting that they could increase the pace of asset purchases if necessary to stimulate the eurozone economy.

The FTSEurofirst 300 of top European equities briefly hit a three-week low of 1,526.29 after the ECB said subdued inflation meant it would continue to pump more stimulus into the region's economy.

That's a sign of greater confidence in the economy, which is growing at a two-year high, confidence that ECB President Mario Draghi echoed in subsequent comments. Drahgi and his European Central Bank colleagues appear in no rush to tighten monetary policy, but at the same time used less dovish language in the rate statement, in order to relieve pressure from Germany, which has been outspoken in demanding tighter monetary policy. U.S. crude CLc1 was last up 12 cents, or 0.26 percent, at $45.84 per barrel.U.S. Treasury yields edged higher after the ECB's upgrade of its euro zone growth forecast, with benchmark 10-year yields US10YT=RR last at 2.201 percent compared to 2.180 percent late Wednesday.The dollar's gains pushed gold prices lower.

"The economic expansion has yet to translate into stronger inflation dynamics...therefore, a very substantial degree of monetary accommodation is still needed for underlying inflation pressures to build up and support headline inflation in the medium term", Draghi said.

"Numerous ECB officials, including Mario Draghi, have highlighted that the pickup in inflation is due to global factors that have since waned", said Aviva Investors' head of rates Charlie Diebel.

The ECB has predicted a growth across the eurozone of 1.9% - up from the predicted 1.8% which was forecast in March.

The same pattern was repeated with a spike in April, to 1.9 percent, before a retreat in May.

But the bank's announcement Thursday reiterated that its stimulus in the form of monthly bond purchases could be stepped up if the economic outlook worsens.

Meanwhile, the by-products of this ultra-loose monetary policy have become clear. But as those political risks abated with rather market-friendly outcomes, and as growth and inflation have continued to print in a positive direction, expectations for the European Central Bank to step away from stimulus have continued to increase.

The Euro fell sharply in mid-week trade on a news report that leaked changes to the Bank's inflation forecasts just 24 hours prior.

However, the general tone of the press conference was dovish.

Read other news on the city site of Tallinn.

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