Saturday 24 March 2018

Draghi says governments need to act alongside QE programme

ECB president Mario Draghi and vice president Vitor Constancio leaving the news conference at the ECB headquarters in Frankfurt
ECB president Mario Draghi and vice president Vitor Constancio leaving the news conference at the ECB headquarters in Frankfurt

Paul Gordon

Mario Draghi said the European Central Bank won't hesitate to add fresh stimulus if needed once it has a clearer picture of the economic impact from the UK's vote to leave the European Union.

However, he reiterated a call for governments to do more to support growth too, saying that "other policy areas must contribute much more decisively". He urged a focus on raising productivity and improving the business environment.

"If warranted to achieve its objective, the Governing Council will act by using all instruments available within its mandate," the ECB president told reporters in Frankfurt yesterday.

"I would stress readiness, willingness, ability, to do so."

The ECB chief spoke after the 25-member Governing Council kept its main refinancing rate at zero, the deposit rate at minus 0.4pc and quantitative easing at around €80bn a month, as predicted in a Bloomberg survey. Economists foresee the central bank waiting until its next monetary-policy meeting on September 8 to add stimulus, most likely by extending quantitative easing.

German 10-year bond yields touched the highest level in four weeks, climbing as high as 0.029pc. The euro declined 0.2pc to $1.0995 at 4:57pm Frankfurt time.

Some banks predict the central bank will run into shortages of certain bonds as its QE programme hoovers up debt faster than governments issue it. That has led to suggestions rules on bond eligibility will be relaxed.

"In the past, we've given enough evidence not only of our readiness, willingness to act but also to be able to adapt our programmes so as to reach the objective of a purchase of €80bn a month," Mr Draghi said.

"I think in worrying about the coming months, whether we'll actually be able to fulfill this objective, proper attention should be given to evidence we've given in the past few months and the ability to exploit flexibility."

The Bank of England also put off fresh stimulus last week. The UK central bank kept interest rates and its asset-purchase facility on hold, signalling instead that most policy makers expect to act at the next meeting on August 4.

"Following the UK's referendum, financial markets have weathered the spike in volatility with encouraging resilience," Mr Draghi said.

He also devoted a substantial portion of the press conference to the debate over how to relieve Italian banks from the burden of their non-performing loans.

Italy is trying to find a way to recapitalise some lenders without burdening subordinated bondholders - many of whom are ordinary families - but also without falling foul of European Commission rules on state aid. (Bloomberg)

Irish Independent

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