While the euro area economic recovery is progressing moderately, the return of inflation is likely to take more time than expected earlier, European Central Bank President Mario Draghi said Thursday, reiterating that the bank is set to review its stimulus measures in December.
“Signs of a sustained turnaround in core inflation have somewhat weakened,” Draghi said at a hearing at the European Parliament’s economic affairs committee.
The economic recovery in the currency-bloc is expected to gradually strengthen the impulse underlying the inflation process, the ECB Chief said. However, the protracted economic weakness of the past years continues to weigh on nominal wage growth, and this could moderate price pressures, he added.
“This suggests that a sustained normalization of inflation could take longer than we anticipated in March when we first appraised the overall impact of our measures,” Draghi said.
After leaving interest rates unchanged in October, Draghi said the Governing Council discussed all possible policy tools including interest rate cuts. He strongly hinted that the bank may boost its stimulus in December as policymakers are increasingly concerned over the persistence of negative inflation.
“We will closely monitor the risks to price stability and thoroughly assess the strength and persistence of the factors that are slowing the return of inflation to levels below, but close to, 2 percent,” Draghi said at the hearing.
“At our December monetary policy meeting, we will re-examine the degree of monetary policy accommodation.”
Further, Draghi said the ECB is ready to deploy all its tools to maintain an appropriate degree of monetary accommodation. He also described the asset purchase programme as “a particularly powerful and flexible instrument”.
“We have always said that our purchases would run beyond end-September 2016 in case we do not see a sustained adjustment in the path of inflation,” Draghi noted. “Other instruments could also be activated to strengthen the impact of the purchase programme if necessary.”
The bank is ready to adjust its EUR 1.1 trillion asset purchase programme, which was launched in March, when needed. One of the stimulus boosts economists expect the ECB to announce on December 3 is an increase in the size of the monthly asset purchases under the programme to EUR 80 billion from EUR 60 billion. Further reduction in interest rates is also possible after Draghi said that policymakers did discuss a deposit rate cut.
The ECB President also defended policymakers’ participation in private meetings with bankers and hedge fund managers. “We have had and still have a clear rule – we do not discuss market-sensitive information in non-public meetings,” he said. “For our monetary policy to be effective, however, it is important to meet market participants and to also hear their views.”
He also said that the ECB will start publishing its Executive Board members’ diaries on a monthly basis, starting February next year.
ECB policymakers closed-door meetings with bankers and hedge fund managers came under the scanner after an incident involved ECB Executive Board member Benoit Coeure revealing market-sensitive information during such a meeting in May.
The material has been provided by InstaForex Company – www.instaforex.com