The European Central Bank (ECB) announced that it was keeping its main rates and bond-buying program unchanged Thursday despite the uptick in inflation seen across the euro zone.
The euro zone's central bank had been widely expected to stick with implementing its monetary stimulus program given the solid performance in the latter stages of 2016. Benchmark interest rates were left unchanged.
"The Governing Council will continue to look through changes in HICP (Harmonised Consumer Price Index) inflation if judged to be transient and to have no implication for the medium-term outlook for price stability," ECB President Mario Draghi told reporters in Frankfurt on Thursday.
Annual inflation rates in the eurozone jumped up from 0.6 percent to 1.1 percent which led to fresh calls from German advocates for the central bank to consider raising interest rates.
However, Draghi argued the increased levels of annual inflation rates had not yet displayed a convincing trend for the ECB to amend its monetary policy.
The euro was down 0.25 percent against the dollar during Draghi's press conference, before recovering to $1.06 by mid-afternoon trade on Thursday.
Draghi also moved to reassure lawmakers in Germany, and elsewhere in the euro zone, to try and stay patient with the ECB. He stressed that lower interest rates were needed currently in order to allow for higher rates in the future.
"The recovery of all of the euro zone is in the interests of everybody, including Germany," Draghi added.
The ECB had said it would extend its generous bond-buying program at its December meeting albeit at a reduced pace of purchases. The central bank explained the new pace of asset purchases would be scaled back from 80 billion euros ($85.3 billion) a month to 60 billion euros from April onward.
Investors and analysts who had expected a six-month extension to the asset-buying program due to end in March were caught off guard in December. ECB President Mario Draghi dismissed the idea that the amendment to the pace of asset purchases could be viewed as easingoff, although conceded the concept of "tapering" had several meanings.
Meeting minutes from the ECB's December meeting showed "a few members" had been opposed to the central bank extending its purchases beyond March.
Federal Reserve Chair Janet Yellen said on Wednesday that it "makes sense" for the U.S. to gradually lift its interest rates in 2017 given the inflationary pressures on the economy. The recent uptick in annual inflation rates in the Eurozone could prompt the ECB to change tack should the trend continue.
ECB officials pointed to elevated levels of political uncertainty throughout 2017 as a reason for concern at their December meeting. A series of elections are scheduled to be held this year, including in the Netherlands, France, Germany and Italy.