Business Irish

Saturday 23 August 2014

Draghi says rates to stay low as ECB readies to publish minutes, hold fewer meetings

Stefan Reicher 
and Jeff Black

Published 04/07/2014 | 00:00

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European Central Bank President Mario Draghi
European Central Bank President Mario Draghi

European Central Bank president Mario Draghi reiterated that he'll keep interest rates low as officials try to revive the region's economy with a new round of emergency measures.

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"The key ECB interest rates will remain at present levels for an extended period of time," Mr Draghi said after he and his colleagues left borrowing costs unchanged.

Thursday's meeting was the first after the ECB unveiled a range of measures last month to fight the threat of deflation in the euro area. The package includes long-term loans to banks under the condition they lend the money on to households and companies as well as preparatory work for an ECB asset-purchase programme.

Mr Draghi said the ECB stands ready to create money in future if required.

He said last month's measures had further loosened the euro zone's monetary policy stance.

"The monetary operations to take place over the coming months will add to this accommodation and will support bank lending," he told a news conference.

"As our measures work their way through to the economy, they will contribute to a return of inflation rates to levels closer to 2pc."

The euro zone inflation rate held at 0.5pc last month, well below the ECB's target of close to but below 2pc and in what Draghi has called the "danger zone".

If people and firms began deferring spending plans on the basis that they expected prices to fall, an economic downward spiral of the sort suffered by Japan could take hold. The ECB says its sees no sign of that.

Mr Draghi's press conference was overshadowed by a US jobs report that painted a picture of a brightening labour market in the world's largest economy. The euro dropped again against the dollar during the press conference.

Yesterday, the ECB left the main refinancing rate at a record low of 0.15pc, as predicted by all 54 economists in a survey beforehand. The deposit rate stayed at minus 0.1pc.

Last month's historic announcement left many questions unanswered and Mr Draghi gave some details on the new targeted-loan programme. He estimated that banks, including Irish banks, could take up as much as €1 trillion in the two initial tenders and a series of quarterly auctions.

"I'm confident that banks will quickly understand that even though it's complicated, it's also quite attractive," he said. At the same time, Mr Draghi provided no precise definition of how much lending banks need to generate before they can keep the loans for the four-year life span of the programme. Nor did he flesh out the ECB's thinking about purchases of asset-backed securities as a means to get lending flowing again.

The ECB's 24-member governing council is trying to stop inflation falling too low in an economy still struggling to recover from a debt crisis that at one point threatened to blow the euro apart.

"We are strongly determined to safeguard the firm anchoring of inflation expectation over the medium term," Mr Draghi said. He also repeated that the ECB stands ready to embark on broad-based asset purchases if necessary.

Mr Draghi said that the ECB will next year move from a monthly cycle of announcing interest rates and will instead announce its decisions every six weeks. In addition, the ECB also plans to start publishing minutes in 2015, falling into line with the Federal Reserve and the Bank of Japan.

Irish Independent

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