In his press conference following the ECB interest rate decision, bank President Draghi remained optimistic surrounding the growth outlook with comments that conditions have continued to strengthen while the overall risks to growth are broadly balanced.
Draghi was also more optimistic surrounding monetary growth aggregates and private lending and there had been strong expansion in narrow money supply growth.
Despite the more positive growth outlook, Draghi reiterated that growth had not yet translated into stronger inflation dynamics. Although factors holding down inflation were expected to be temporary, they will remain for some time.
In this context, he repeated that a substantial amount of monetary policy accommodation is still needed to maintain upward pressure on inflation.
His main message was that the bank needed to be persistent, prudent and patient as the ECB is not there yet on reaching its inflation goals.
Draghi insisted that there were no inconsistencies between the latest policy statement and the speech that he made in late June which appeared to be more hawkish in nature.
He also stated that there had been no discussion of action which could be taken in September and there was a strong commitment to avoid being tied down by specific dates. He also warned that the last thing that policymakers want is a tightening of financial conditions.
The main objective for Draghi was not to get backed into a position where a tapering decision is expected in September with the bank looking for as much flexibility as possible in deciding when to adjust policy.
The overall rhetoric was relatively dovish and German bunds held in positive territory following the press conference. There was, however, a divergent reaction in currency markets as the Euro secured renewed gains with EUR/USD advancing to around 1.1560. The Euro gained from fresh doubts surrounding the dollar.