ECB cuts inflation projections, lifts growth outlook

FRANKFURT, March 16 (Reuters) - The European Central Bank cut its inflation projections on Thursday but figures still point to price growth above its 2% target for years to come, suggesting a prolonged period of tight monetary policy. The ECB has raised interest rates by a combined 3.5 percentage points since July to fight a record surge in inflation, and more rate action is still likely as price growth is proving to be far more stubborn than once feared.

Adding to the inflation worries, the ECB also raised its forecasts for underlying prices, or excluding volatile food and fuel costs, indicating that price growth is likely to be sticky, partly driven by relatively quick nominal wage growth. Wages are still growing slower than inflation but recent wage settlements in the 5% to 6% range are inconsistent with 2% price growth, so the ECB will need to see a big moderation in wage demands next year. The bank also lifted its growth projection for this year after the bloc avoided a winter recession, a boon for employment but also a problem for inflation as continued economic expansion amid a tight labour market could keep pushing wage costs higher. The following are the ECB's projections for growth and inflation. Previous projections from December are in brackets.

The ECB targets inflation at 2%. 2023 2024 2025 GDP growth 1.0% (0.5%) 1.6% (1.9%) 1.6% (1.8%) Inflation 5.3% (6.3%) 2.9% (3.4%) 2.1% (2.3%) (Reporting by Balazs Koranyi; Editing by Catherine Evans and Hugh Lawson)

Reuters Messaging: balazs.koranyi.thomsonreuters.com@reuters.net))

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ECB cuts inflation projections, lifts growth outlook

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