ECB willing to act fast
to boost inflation, says Draghi
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[November 20, 2015]
By John O'Donnell and Francesco
Canepa
FRANKFURT (Reuters) - The European Central
Bank is ready to act quickly to boost anemic inflation in the euro zone,
its president said on Friday, offering the strongest hint yet that the
bank will unveil fresh stimulus measures at its Dec. 3 meeting.
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Mario Draghi highlighted changes to the ECB's asset purchase program
and deposit rate as possible tools to stop inflation from falling
further below its target of just under 2 percent.
Draghi said the risk had increased that the ECB would miss that
target. "If we decide (on Dec. 3) that the current trajectory of our
policy is not sufficient to achieve our objective, we will do what
we must to raise inflation as quickly as possible," he told a
conference in Frankfurt.
Draghi said the strength of the euro zone's recovery was modest and
the global outlook for demand, particularly in emerging countries,
had worsened significantly in recent months.
His views appeared likely to meet some objections on the ECB's
decision-making Governing Council, which includes the bank's
executive board members and the governors of the bloc's 19 central
banks.
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Speaking at the same event, the Bundesbank's president Jens Weidmann,
one of the most prominent critics of the ECB's ultra-easy policy,
struck a more upbeat tone on the economy and made the case for
waiting before taking new policy steps.
"I see no reason to talk down the economic outlook and paint a
gloomy picture," Weidmann said. "We should also not forget that the
monetary policy measures already taken still need time to fully feed
into the economy."
Following Draghi's comments the euro fell as low as $1.0664 and
traded near three-month lows against sterling. It then recouped its
losses to move back above $1.07.
Germany's Finance Minister Wolfgang Schaeuble, who has criticized
the ECB in several occasions, was also due to speak at the event.
DEFENDING QE
The ECB has bought 60 billion euros ($64 billion) a month of mostly
government bonds since March to help revive inflation, but prices
rose just 0.1 percent in October.
Draghi defended the ECB's quantitative easing (QE) asset purchase
program, noting it had brought down borrowing costs for euro zone
companies.
He said the scheme could be expanded and extended and its
composition changed to provide further stimulus while the deposit
rate could be cut again to boost the impact of QE.
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The ECB's deposit rate is currently -0.20 points, meaning banks are
charged to park cash at the ECB, giving them an added incentive to
lend, rather than pile reserves at the central bank.
Some questioned the benefits of ultra-low rates, with Deutsche
Bank's Co-Chief Executive Juergen Fitschen telling the same
conference that the ensuing increase in bank lending volumes might
not be enough to offset the hit to margins the policy had also
caused.
Markets were already expecting further ECB action on Dec. 3, most
likely including a further cut to the deposit rate and an extension
of the asset purchases beyond their scheduled end in September 2016.
The ECB will get updated inflation forecasts from its staff at the
December meeting and has already said conditions have worsened since
its latest estimates were published in September.
Draghi said the ECB would act if it concluded that euro zone
inflation was at risk of falling further away from the ECB's target,
echoing concerns already expressed at the October meeting of the
bank's Governing Council.
"If we conclude that the balance of risks to our medium-term price
stability objective is skewed to the downside, we will act by using
all the instruments available within our mandate," Draghi said.
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($1 = 0.9362 euros)
(Additional reporting by Balazs Koranyi; Writing by Francesco Canepa;
editing by John Stonestreet)
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