Draghi Signals March ECB Stimulus
January 21 2016 - 4:49AM
RTTF2
European Central Bank President Mario Draghi said on Thursday
that there were no limits on what policy tools the bank can deploy
to achieve its inflation goal and to boost euro area growth, and
hinted that more stimulus measures may come in March as the
downside risks such as global uncertainty, market volatility and
geopolitics have increased.
Draghi pointed out that the downside risks have increased as the
year began, amid heightened uncertainty about emerging market
economies' growth prospects, volatility in financial and commodity
markets, and geopolitical risks. Further, he said euro area
inflation dynamics continue to be weaker than expected.
"It will therefore be necessary to review and possibly
reconsider our monetary policy stance at our next meeting in early
March, when the new staff macroeconomic projections become
available which will also cover the year 2018," Draghi said in his
introductory remarks at the customary post-decision press
conference in Frankfurt.
Responding to reporters' questions, Draghi said the bank has
several policy tools at its disposal and there was "no limit" as to
what it can do in achieving its inflation and growth objectives. He
also said that the ECB was willing and determined to use its policy
tools when needed.
In the backdrop of the recent slump in oil prices, "the expected
path of annual HICP inflation in 2016 is now significantly lower
compared with the outlook in early December", Draghi said. He also
noted that the ECB was closely monitoring the developments in
China.
"Inflation rates are currently expected to remain at very low or
negative levels in the coming months and to pick up only later in
2016," the central banker said.
He also noted that all inflation expectation measures have
declined, and their correlation with current inflation and oil
prices have increased.
Earlier Thursday, the 25-member Governing Council left the main
refinancing rate unchanged at a record low 0.05 percent. After a 10
basis points cut in December, the deposit rate was kept at a record
low -0.30 percent. The marginal lending rate was retained at 0.30
percent.
"We expect them to remain at present or lower levels for an
extended period of time," Draghi said.
"The asset purchases are proceeding smoothly and continue to
have a favorable impact on the cost and availability of credit for
firms and households."
The extra policy measures undertaken by the ECB since mid-2014
are working, the policymaker noted, citing improvements in the real
economy and, credit and financing conditions.
Till December, the ECB had maintained rates unchanged for ten
consecutive sessions after reducing them by 10 basis points in
September 2014.
In December, the ECB also decided to extend the monthly net
asset purchases of EUR 60 billion to at least the end of March
2017, and to reinvest the principal payments on maturing securities
for as long as necessary.
Draghi said the December measures were "fully appropriate" and
will lead to "significant addition of liquidity to the banking
system". These measures will also strengthen the ECB's forward
guidance on interest rates, he added.
The bank expects the euro area economic recovery to proceed and
expects the recent fall in oil prices to boost consumer spending to
some extent.
"However, the economic recovery in the euro area continues to be
dampened by subdued growth prospects in emerging markets, volatile
financial markets, the necessary balance sheet adjustments in a
number of sectors and the sluggish pace of implementation of
structural reforms," Draghi said.
"The risks to the euro area growth outlook remain on the
downside."
The ECB chief noted that these risks could weigh on global
growth and foreign demand for euro area exports and economic
sentiment. He maintained that the euro exchange rate is not a
policy target, but said it will be affected by the policy actions
of the bank.
Though inflation is expected to recover later this year and
thereafter, risks of second-round effects should be monitored
closely, Draghi said. The March ECB Staff projections will give the
latest picture and will also initiate the forecasts for 2018, he
added.
Draghi also sought growth-friendly fiscal consolidation and said
the ongoing cyclical recovery must be supported by structural
policies. He also noted that Europe's refugee crisis was an
'extraordinary' event.
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