2017.12.1410:17:00UTC+00ECB Boosts Growth Forecast; Sees Inflation Falling Short Of Target Even In 2020

The European Central Bank raised the euro area growth forecasts, as it gained confidence from the strong momentum this year, but inflation was seen to remain short of its target into 2020, which Mario Draghi called a "muted" news that warrants support from massive monetary stimulus.

However, an optimistic ECB President said the bank was more confident of inflation reaching its target of "below, but close to 2 percent" than it was two months ago.

In its latest round of macroeconomic projections, unveiled on Thursday, the ECB Staff raised the growth forecast for this year to 2.4 percent from 2.2 percent.

The outlook for next year was sharply lifted to 2.3 percent from 1.8 percent. The projection for 2019 was raised to 1.9 percent from 1.7 percent.

And, the bank revealed it first projection for growth in 2020 at 1.7 percent.

"Risks surrounding the euro area growth outlook remain broadly balanced," Draghi said, who called the projections very positive.

"The strong cyclical momentum, underpinned by continued positive developments in sentiment indicators, could lead to further positive growth surprises in the near term," he added.

That said, euro area growth faces downside risks mainly from global factors and development in the foreign exchange markets, Draghi said.

The ECB Chief was less upbeat on the inflation outlook, though he declared that deflation risks have disappeared.

The bank raised the inflation outlook for next year, while retaining the projection for this year at 1.5 percent.

The inflation forecast for next year was raised to 1.4 percent from 1.2 percent. The projection for 2019 was retained at 1.5 percent. The bank saw inflation at 1.5 percent in 2020.

The outlook for headline HICP inflation has been revised up, mainly reflecting higher oil and food prices, Draghi said. He also said that the likelihood of inflation of around 0.5 percent has significantly declined.

The ECB expects the output gap to close next year, he said, adding that this will be based on the strengthening of the economy.

He also said that the euro area and the U.S. were in different stages of recovery and the ECB does not expect any negative effect from the Fed tightening.

Further, Draghi said there was no systemic risks to financial stability in the euro area at present, though a long period of low interest rates and stimulus has left the ground fertile for risks to financial stability.

Responding to questions from reporters, Draghi said raising interest rates in future would be good news as it would show that inflation was on the path to being self-sustained.

Earlier on Thursday, the ECB left its key interest rates, asset purchase plan and forward guidance unchanged, in line with economists' expectations.

Economists expect an interest rate hike to come only in the latter half of 2019, at the earliest.

Regarding the losses incurred by the ECB on buying assets that included the debt of the troubled South African retailer Steinhoff, Draghi said the loss figures were exaggerated.

"Losses are there...they represent a small factor of the 1.6 billion net interest income we generated last year," he added.

He also said such losses in large asset purchases was not unusual and that the ECB was very transparent with its scheme.

Draghi also stressed that there were no discussions in the Governing Council regarding a sudden stop of asset purchases or tapering.