Sunday 17 December 2017

Draghi weighed up 'concerns' over rate cuts

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

EUROPEAN Central Bank president Mario Draghi said keeping interest rates low for an extended period carries risks that policymakers weighed carefully before they reduced the benchmark rate to a record low.

"I am, of course, aware that our rate cut raised some concerns," Mr Draghi said in a speech in Berlin. "A protracted period of time of low rates creates the scene for risks in financial stability."

The ECB cut its main refinancing rate by a quarter of a percentage point to 0.25pc two weeks ago. It kept the overnight deposit rate for commercial lenders who park excess cash at the central bank at zero. Policymakers are considering a smaller-than-normal cut in the deposit rate to minus 0.1pc if more stimulus is needed to ward off deflation, according to two central bank officials with knowledge of the debate.

"Don't try to infer anything from what I say, anything about the possibility of negative rates," Mr Draghi said. "This was discussed in the last monetary-policy meeting and there's no more news since then. Let me make this clear."

The euro rose one-third of a cent after Mr Draghi's remarks, but it fell 0.7pc yesterday.

The ECB's governing council gathered in Frankfurt this week for its mid-month meeting. The next interest-rate decision will be announced on December 5.

Mr Draghi said that risks from low interest rates haven't materialised across the 17-nation euro region so far. "We may at most see local risks, but local risks of certain specified sectors have to be addressed by local tools, local means," he said. (Bloomberg)

Irish Independent

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