ECB revises inflation and economic growth forecasts higher

The European Central Bank revised its forecasts for inflation and economic growth in 2016 higher on Thursday.

President Mario Draghi said the ECB expects the economy to grow 1.6% in 2016, compared to a March estimate of 1.4%. However, forecasts for the next two years were left unchanged at 1.7%.

Inflation is expected to rise 0.2% in 2016, 1.3% in 2017 and 1.7% in 2018. Draghi said the forecast for inflation this year was revised higher from the ECB’s last estimate of 0.1%, reflecting an improvement in oil prices.

The ECB is targeting inflation of just below 2%. Eurozone inflation fell an annualised 0.1% in May, compared to a 0.2% drop in April, Eurostat said on Tuesday.

Draghi warned that eurozone inflation is likely to remain very low, or negative, for some time. He also said risks to the global economy are to the downside.

He cautioned that this month's British referendum on European Union membership was one of the downside risks to the economy. However, he believes the ECB would be ready for any outcome.

"The ECB has a view that the UK should remain in the European Union, because the European Union would benefit from its presence," he said.

"And we believe the UK would benefit from being in the European Union too."

Draghi's remarks came at a press conference following the announcement of the ECB's latest policy measures.

The ECB's Governing Council held interest rates at 0.0%, the marginal lending facility rate at 0.25% and the deposit facility rate at -0.40%. The decision to keep policy measures unchanged was expected by economists.

The central bank's last major policy changes came in March when the Governing Council cut interest rates and expanded monthly asset purchases by €20bn to €80bn to help bring inflation back towards its target of just below 2%.

"It is no surprise at all that the ECB left policy on hold today," said Jonathan Loynes, chief European economist at Capital Economics.

"With the latest policy measures only announced in March and some, like the corporate bond purchases and new TLTROs, not even implemented yet, the Governing Council is firmly in wait and see mode for now."