Euro surges as ECB President Mario Draghi sounds rather upbeat in his European Parliament ECON committee hearing. On growth he noted “an ongoing broad-based expansion of the euro area economy”, with “high levels of capacity utilisation”. Also, “labour markets are tightening with signs of labour shortages in some countries and sectors” And “higher income supports private consumption”.
More important, Draghi noted “domestic price pressures are strengthening and broadening”. And, “underlying inflation is expected to increase further over the coming months as the tightening labour market is pushing up wage growth.”
Overall guidance on monetary policy is unchanged though. That is, subject today, ECB will end the asset purchase program after December. And interest rates will stay at current level “through the summer of 2019”. Draghi said the guidance firstly incorporated a “calendar-based element” which tells the market when the first hike could come. Secondly, there is a “state-dependent component” indicating that rate could still stay unchanged if necessary, and for as long as needed.
