Draghi Says ECB To Decide On QE In October Amid Euro Strength Concerns
The European Central Bank may decide on the future of its massive stimulus in October even as policymakers are worried about the risks that a strengthening euro pose to the inflation outlook, the bank's chief Mario Draghi said Thursday.
“This autumn we will decide on the calibration of our policy instruments beyond the end of the year,” ECB President Draghi said in his post-decision press conference in Frankfurt.
Policymakers held “very preliminary” discussions on quantitative easing this time, while policy sequencing and bond scarcity issues were not discussed, Draghi told reporters.
The pros and cons of various policy scenarios were discussed and “probably the bulk of these decisions will be taken in October”, he said.
Earlier on Thursday, the Governing Council kept all its three interest rates unchanged for a twelfth consecutive policy session and retained its monthly asset purchases of EUR 60 billion that are set to run till December 2017. The size was reduced in March from EUR 80 billion.
Interest rates are expected to remain at present levels for an extended period of time, and well past the horizon of our net asset purchases, Draghi reiterated.
The euro soared as Draghi talked about the possibility of stimulus decisions in October.
Rate-setters broadly agreed that the recent exchange rate volatility was a source of concern which requires monitoring, Draghi said. While the exchange rate was not a policy target, it remains very important for the medium term inflation outlook, he added.
Indeed, the ECB Staff had to trim the inflation outlook for next year and beyond, due to the stronger euro.
In the latest projections that Draghi unveiled on Thursday, the inflation forecast for this year was retained at 1.5 percent, while the outlook for next year was cut to 1.2 percent from 1.3 percent. The price growth forecast for 2019 was slashed to 1.5 percent from 1.6 percent.
“Very substantial degree of accommodation” is still required to build up underlying inflation pressures, Draghi reiterated.
He urged patience and persistence on inflation and expressed confidence that it will converge to the ECB's target of “below, but close to 2 percent”, eventually.
“While the ongoing economic expansion provides confidence that inflation will gradually head to levels in line with our inflation aim, it has yet to translate sufficiently into stronger inflation dynamics,” Draghi said.
“Measures of underlying inflation have ticked up slightly in recent months but, overall, remain at subdued levels.”
The Eurozone growth forecast for this year was raised to 2.2 percent from 1.9 percent, while the projection for next year was retained at 1.8 percent. The outlook for 2019 was also left unchanged at 1.7 percent.
Risk to the growth outlook remains broadly balanced, Draghi said.