ECB staff lower 2016 inflation outlook to 1.4 percent

FRANKFURT Thu Jun 5, 2014 3:35pm EDT

FRANKFURT (Reuters) - The European Central Bank lowered its forecast for euro zone inflation on Thursday, expecting it to reach 1.4 percent in 2016, further away from its target of below but close to 2 percent.

The new medium-term ECB staff projections are lower than those published in March, when ECB staff had forecast 1.5 percent for 2016.

The bank said on Thursday its staff expected inflation to average 1.5 percent in the final quarter of 2016, down from its March projection of 1.7 percent in that quarter.

The ECB cut interest rates to record lows on Thursday, imposing negative rates on its overnight depositors to cajole banks into lending more and to fight off the risk of Japan-like deflation.

ECB staff also revised down their projections for 2014 inflation to a midpoint of 0.7 percent from the previous 1.0 percent. They saw 2015 inflation at 1.1 percent, lower than their earlier estimate of 1.3 percent.

In terms of growth, the forecasts saw the euro zone economy growing by 1.8 percent in 2016 after 1.7 percent in 2015 and 1.0 percent this year. That marked a slight downward revision to its previous 2014 forecast but an upward revision to its 2015 projection.

(Reporting by Eva Taylor; Editing by Hugh Lawson)

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