The euro zone economy is on track for gradual expansion without pressing inflationary problems, the European Central Bank said today as it erased any lingering expectations an interest rate cut is an option.
But it gave no sign in its August bulletin it was in a hurry to end its long period of super cheap credit before recovery is solid.
High oil prices create downside risks to growth as well as upside risks to inflation, the ECB said on the day crude oil touched a new high of over $65 a barrel.
Despite these dangers, the central bank was more optimistic than a month ago that the 12-nation region was pulling out of its spring soft patch and that slow recovery is at hand.
"The Governing Council expects the euro area economy will expand in a sustained, albeit gradual, manner," the ECB said. Only a month ago, it said there was no sign yet of sustained recovery.
Indeed, data out today showed better-than-expected growth in the 12-nation euro region. Italy rebounded from recession and The Netherlands picked up, lifting growth in the second quarter to a 0.3 per cent quarter-on-quarter rate versus 0.2 per cent expected, the European Commission said.
If growth continues apace, analysts said they expect the ECB will start slowly laying the groundwork this autumn for an eventual interest rate rise.