If the ECB starts injecting money into the economy using asset
purchases, it is expected to choose a mix of government and private
assets, including ABS, which collapsed during the financial crisis
and are still recovering.
"The present size of the ABS market is about 100 billion (euros) so
it is relatively small," Draghi told a news conference in response
to a question on how useful the ABS market could be in the ECB's
unconventional policy measures.
"We may even consider other unconventional measures."
Speaking on the sidelines of the IMF-World Bank spring meetings in
Washington, where the issue of weak euro zone inflation took center
stage, Draghi said bond purchases had to be guided by European Union
law and take into account European companies' preference for
financing themselves through bank loans rather than issuing bonds.
"We have to have these two dimensions in mind when we design a
program," he said.
The ECB has twice embarked on bond purchases, first buying up
covered bonds used to back mortgages and then purchasing limited
sovereign bonds to keep markets turning over during the worst of the
But it has never ventured into pumping money into the financial
system via bond purchases, something which is now on the table as
inflation veers dangerously low.
Other ECB officials attending the Washington meetings, including
Vice President Vitor Constancio, also said that the ECB would look
at all instrument classes, not only private assets.
A Eurosystem official, speaking on condition of anonymity, said this
referred to purchases of government bonds on the market because
sovereign bonds were the only market deep and liquid enough to make
the required impact.
But it was not obvious which bonds to buy, the official said,
because while buying Greek or Portuguese paper could help tame
deflation there, the falling consumer prices in these countries were
part of a natural adjustment of their economies to become more
competitive, and were actually welcome.
Buying German bonds, on the other hand, could boost overall euro
zone inflation more quickly, because Germany, the euro zone's
biggest economy, had the greatest impact on the overall consumer
price index, the official said.
Draghi said it was premature to discuss if the bank would first
decide to use its remaining room for rate cuts or move directly to
unconventional measures if inflation data again turned out to be
lower than expected.
[to top of second column]
The ECB wants to keep inflation below but close to 2 percent over
the medium term, but consumer price growth slowed to 0.5 percent
year-on-year in March after staying in what Draghi called a "danger
zone" of below 1 percent since October.
Low inflation is a problem not only because there is a risk it could
turn into a stubborn cycle of falling prices, or deflation, but also
because it makes it harder for euro zone countries to reduce huge
public debt and become more competitive in the global economy.
"We have made an assessment in March and the profile, the inflation
path that was projected didn't grant decision-making by the (ECB)
Governing Council at that time," Draghi said.
"What drives the Governing Council to decide are two things: one is
an unwanted tightening of monetary financial conditions and the
second is deterioration of our medium-term outlook."
Unwanted tightening of monetary conditions meant, for example, a
further strengthening of the euro exchange rate.
"In a sense, if you want our monetary policy to remain as
accommodative as it is today, a further strengthening of the
exchange rate — I don't want to give you a level where we will act
or not, I am giving you an orientation — would require further
monetary policy stimulus," he said.
A deterioration of the medium-term outlook could happen if inflation
data for April or May were to be weak again, diverging from the
bank's main scenario that price growth will gradually pick up
towards 2 percent over the next two years.
Constancio has said that the April inflation data would be key to a
decision whether to start unconventional easing, while Governing
Council member Ewald Nowotny said he expected the ECB to wait until
its June meeting with a decision because the bank would then also
have new economic growth forecasts.
(Reporting by Jan Strupczewski; editing by Paul Simao)
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