European Central Bank President Mario Draghi has set the stage for a possible stimulus expansion in December as policymakers are increasingly concerned over the deteriorating growth and inflation outlook for the euro area.
ECB policymakers held a very “rich discussion” regarding the various monetary policy tools that included interest rate cuts, Draghi said on Thursday, while responding to questions from reporters during his customary press conference following the rate-setting session in Malta.
“The strength and persistence of the factors that are currently slowing the return of inflation to levels below, but close to, 2 percent in the medium term require thorough analysis,” Draghi said in his introductory statement to the press conference.
“In this context, the degree of monetary policy accommodation will need to be re-examined at our December monetary policy meeting, when the new Eurosystem staff macroeconomic projections will be available.”
More significantly, Draghi said the current stance of the Governing Council was not “wait-and-see”, but more “work-and-assess”. He also said that some policymakers wanted stimulus action on Thursday, but added that it was not the general sentiment in the rate-setting body.
Draghi said various ECB committees have been tasked to explore the impact of various policy tools at the bank’s disposal.
The Governing Council did discuss lowering interest rates further, essentially a reduction to the deposit rate, the ECB chief said.
The deposit rate is already in the negative territory at -0.20 percent and was left unchanged today with other key interest rates – the main refinancing rate at record low 0.05 percent and the marginal lending rate at 0.30 percent. The bank left rates unchanged for the tenth session in a row.
While the ECB’s rate-setting body held intense discussions on the policy instruments, no specific choice was made and policymakers had no special preference for any one measure, Draghi said. He also said that the bank remains open to the whole menu of policy tools.
Further, Draghi said the bank is ready to adjust its EUR 1.1 trillion asset purchase programme, which was launched in March, when needed. The programme is set to run until September 2016, but the bank has said it is ready to extend it beyond that if needed or until inflation returns to its aim of ‘below, but close to 2 percent’.
The ECB expects the Eurozone economic recovery to continue, albeit dampened, in particular, by weaker than expected foreign demand.
“The risks to the euro area growth outlook remain on the downside, reflecting in particular the heightened uncertainties regarding developments in emerging market economies, which have the potential to further weigh on global growth and foreign demand for euro area exports,” Draghi said.
The bank expects inflation to rise at the turn of the year, partly due to base effects linked to the fall in oil prices in late 2014. Eurozone inflation turned negative in September at -0.1 percent.
“There are risks stemming from the economic outlook and from financial and commodity market developments which could further slow down the gradual increase in inflation rates towards levels closer to 2 percent,” Draghi said. “These risks are being closely monitored by the Governing Council.”
Regarding the migrant crisis that has gripped Europe, Draghi said policymakers briefly discussed the matter and concluded that it was too early to judge the economic impact of the phenomenon.
The material has been provided by InstaForex Company – www.instaforex.com