ECB Draghi: Unilateral Tariffs Are 'Dangerous', But We're Not In a Trade War Yet

European Central Bank President Mario Draghi called U.S. plans to impose steep import tariffs on steel and aluminium "dangerous" and said trade disputes could hit the region's growth and inflation prospects unless they were solved in a multilateral framework.

Draghi issued the warning during his regular question-and-answer session with journalists in Frankfurt following the Bank's decision to drop a reference to further expansion of its €2.55 trillion quantitative easing program even as it kept the pace of purchases unchanged and held its key lending rates unchanged at a record low. However, while the potential for broader international disputes -- which he stopped short of calling a 'trade war' -- isn't likely to have serious implications for Eurozone growth, Draghi nonetheless issued a plea for dialogue between Brussels and Washington. 

"The immediate spillover of [U.S.] trade measures is not going to be that big. But we are convinced that disputes should be discussed and resolved in a multilateral framework," Draghi said in reference to President Donald Trump's planned levies on non-American metals. "Unilateral decisions are dangerous. There is a certain worry about the state of international relations because if you put tariffs against your allies one worries who the enemies are."

The euro was marked at 1.2393 against a weaker U.S. dollar following Draghi's remarks but has gained more than 3.67% against the greenback so far this year, partly amid speculation that the ECB is preparing to both end its QE program and potentially lift the -0.4% rate is charges to currency area lenders who use its deposit facility.

In a rather dovish press conference, @ECB President #Draghi re-iterated view that, for #Eurozone ,upside risks are "domestic" and downside risks are "external.
Also, he added financial deregulation to his implicit/explicit US list on which he had already placed #trade & #currency https://t.co/CFJof7Zab3

— Mohamed A. El-Erian (@elerianm) March 8, 2018
Draghi's comments followed a similar critique of U.S. policy earlier this year, when he suggest that U.S. dollar weakness may have violated terms agreed by global finance ministers last year in Washington.

"Currency movements justified by economic strength are a just a fact of nature," Draghi said on Jan. 25 when asked it he was concerned about the dollar's moves and comments from U.S. officials, including Treasury Secretary Steven Mnuchin. "The issue is other moves that might be the result of certain language and the impact that has on our inflation."

The ECB nudged its Eurozone growth forecast higher -- to 2.4% this from from a previous assessment of 2.3% -- but trimmed its estimate for currency area inflation to 1.4% for this year and next.

"Overall, an ample degree of monetary stimulus remains necessary for underlying inflation pressures to continue to build up and support headline inflation developments over the medium term," Draghi said. "This continued monetary support is provided by the net asset purchases, by the sizeable stock of acquired assets and the forthcoming reinvestments, and by our forward guidance on interest rates."

����#ECB removes #QE flexibility but as expected #Draghi is sounding dovish at the press conference saying "we can't declare victory on inflation" - first #ECB rate hike is more than a year away, in our view $EURUSD $EUR pic.twitter.com/xuvo8c0SxV

— Danske Bank Research (@Danske_Research) March 8, 2018

Consumer price increases in the currency area slowed to 1.2% from 1.3% in January and 1.4% in December, Eurostat said, largely matching economists forecasts but once again coming in well-shy of the ECB's 'just below 2%' target for price stability. So-called core inflation, which strips out volatile prices for food and energy, was tabbed at 1%, again matching analysts' forecasts.

The reading also raises further questions as to how and when the ECB will co-ordinate the exit of its myriad policy tools, most of which have been in place for nearly three years, as the U.S. Federal Reserve hints at faster rate hikes between now and the end of the year. It also continues to puzzle economists as they watch the Eurozone economy accelerate and the region's jobless rate fall.

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