It kept interest rates steady at 0.25 percent at its regular
meeting, but afterwards ECB President Mario Draghi said he and his
colleagues were committed to doing anything they could to stop low
inflation from dragging on too long.
This included quantitative easing, the printing of money to buy
assets, something that previously was considered highly undesirable
by some euro zone central bankers, and only to be considered if
prices were falling outright.
But policymakers have been willing in recent weeks to publicly
broach cutting deposit rates below zero — effectively charging banks
to hold cash with the ECB — or embarking on QE bond purchases as the
United States, Japan and Britain have, if the threat of deflation
became more acute.
"We will monitor developments very closely and we will consider all
instruments available to us," Draghi said. "We are resolute in our
determination to maintain a high degree of monetary accommodation
and act swiftly if required."
He added: "The Governing Council is unanimous in its commitment to
using also unconventional instruments within its mandate in order to
cope effectively with risks of a too prolonged period of low
That marked a significant shift of tone from last month when Draghi
appeared to set quite a high bar to action.
The euro weakened against the dollar after his comments, hitting its
lowest level since February 28, but then recovered.
"The ECB is being slightly more dovish than the market expected,"
said Kathy Lien, managing director at BK Asset Management in New
York. "The main takeaway is that the council is considering unusual
techniques, and that's negative for euro/dollar."
Nonetheless some economists were skeptical that Draghi's words would
soon be followed by action from the ECB.
"Our base case still is that the ECB is done easing and that major
unconditional measures will not be taken, barring a major shock to
the economy," said Holger Sandte, chief European analyst at Nordea.
ING referred to it as "The Art of Doing Nothing".
Euro zone inflation fell to 0.5 percent in March, levels last seen
when the economy was deep in recession in 2009, but it was driven by
the kind of softer food and energy prices the bank usually judges as
Draghi said the risk of deflation remained limited and labeled the
latest inflation figures hard to read, partly because Easter
holidays fall in April this year after coming in March last year,
thereby delaying the impact of rising travel and hotel prices at a
time when many people take a holiday.
"We need more information to assess whether there has been a change
in the medium-term (inflation) outlook," he said.
[to top of second column]
One reason for the shift in thinking on QE — most notably from Bundesbank chief Jens Weidmann, often a hardliner — appears to have
been the strength of the euro which will bear down on import prices,
depressing inflation further.
Indeed, one aim of flagging possible future action could be to try
and talk the currency down.
Draghi said the exchange rate was not a policy target but was a
factor in assessing price stability, and gave it greater prominence
in his introductory statement.
"The possible repercussions of both geopolitical risks and exchange
rate developments will be monitored closely," he said.
Pressure from abroad to act has mounted, most notably from the
International Monetary Fund, which has warned of the threat of "lowflation"
rather than outright deflation.
"More monetary easing, including through unconventional measures, is
needed in the euro area," IMF head Christine Lagarde said in a
speech on Wednesday, outlining the Fund's policy recommendations
ahead of its spring meetings next week.
Draghi conceded that low inflation made euro zone debt harder to cut
and economic adjustment more difficult — though he also chided the
IMF for making more forceful recommendations to the ECB than it did
to the U.S. Federal Reserve.
The OECD also warned of the risk of deflation on Thursday.
But buying government assets with newly created money is not an easy
prospect for the ECB, and Draghi said that the central bank had not
yet exhausted conventional means of stimulus.
It would have to decide how to spread the money between the bonds of
different countries with varying credit qualities — and for this
reason Draghi said that buying private-sector assets might have some
Draghi also pointed out that the euro zone depended more on bank
lending than on capital markets, in contrast to the United States,
which could limit the effectiveness of QE.
($1 = 0.7249 Euros)
(Additional reporting by David Milliken and Eva Taylor;
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