Monday 19 March 2018

ECB says QE plan to boost Eurozone is working

Mario Draghi, president of the European Central Bank (ECB). Photo: Bloomberg
Mario Draghi, president of the European Central Bank (ECB). Photo: Bloomberg

Jeff Black and Alessandro Speciale

Mario Draghi said monetary policy stimulus is filtering through to the economy as planned, as he insisted the European Central Bank needs to see its bond buying through to the finish.

"The asset purchase programmes are proceeding well," the European Central Bank (ECB) president said at a press conference in Frankfurt after officials kept interest rates on hold. He unveiled economic forecasts for a pickup in growth and inflation in the next three years similar to the outlook from March. "Reaching our objectives is conditional on the full implementation of our monetary policy stance."

Since the ECB started its €1.1-trillion quantitative easing (QE) programme three months ago, inflation in the 19-nation Eurozone has bottomed out, even though it remains far below the ECB's goal of just below 2pc. An improving economic performance comes despite the uncertainty created by talks on Greece as the country flirts with default.

"We expect the economic recovery to broaden, and domestic demand should be further supported by monetary policy measures," Mr Draghi said. "The recovery is on track exactly according to our projections."

German 10-year bonds fell, sending yields to the highest this year, as Mr Draghi said markets must get used to periods of higher volatility after a rout in sovereign debt across the euro area. The chief area of good news for policy-makers is evidence the deflation scare that helped usher in QE may be on the wane.

The inflation rate in the euro area was positive for the first time in six months in May, rising to 0.3pc from zero and beating economists' forecasts. Core inflation, which strips out typically volatile energy and food prices, was 0.9pc, the fastest in nine months.

Presenting fresh forecasts, Mr Draghi said the outlook remains basically unchanged. Inflation will be 0.3pc this year instead of zero as previously predicted, and will reach 1.8pc in 2017. Growth in 2015 is expected to average 1.5pc, then 1.9pc in 2016, before a 2pc pace the year after.

At the same time, the ECB president warned that slowing global growth could threaten those scenarios.

"We had expected figures stronger than out projections," he said. "There has been some loss of momentum, mostly due to the weakening of economies outside the euro area."

The Organization for Economic Co-operation and Development cut its global growth forecast on Wednesday, saying investment is lagging and risks including a possible Greek default are hurting confidence.

Mr Draghi said there's still a long way to go on the road to a Eurozone recovery, and there is no discussion yet about how to exit from the current policy programs. Purchases of sovereign debt, covered bonds and asset-backed securities are intended to average a total of €60bn a month through September 2016.

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