European Central Bank

ECB stands ready to ease policy if needed, says Draghi

PUBLISHED : Friday, 05 April, 2013, 12:00am
UPDATED : Friday, 05 April, 2013, 5:10am

European Central Bank President Mario Draghi said the bank stands ready to cut interest rates if the economy deteriorates further, and officials are considering additional measures to boost growth as the debt crisis enters its fourth year.

"Our monetary policy stance will remain accommodative for as long as needed," Draghi said yesterday after the ECB kept its benchmark interest rate at a record low of 0.75 per cent. "We will assess all the incoming data in the coming weeks and we stand ready to act."

With doubts growing about Draghi's forecast for an economic recovery later this year, the ECB is looking at a range of measures, including lower rates, more long-term loans to banks and a programme to encourage lending to small- and medium-sized companies, three officials with knowledge of the deliberations said this week. The ECB president said officials are "looking at various instruments", though he stopped short of saying what they would be.

The yield on France's 10-year bond yield fell to a record low after Draghi's remarks, declining to 1.893 per cent, the lowest since 1990. The euro initially dropped before rebounding to US$1.2862, almost unchanged from its level at the start of the day.

An interest-rate cut "now looks highly likely", said Howard Archer, chief European economist at IHS Global Insight in London. "Indeed, it is very possible that the ECB could trim interest rates to 0.5 per cent as soon as at its May policy meeting."

Draghi said risks to the economic outlook remain on the downside and inflation is "edging down well below" the ECB's 2 per cent target. It will slow to 1.3 per cent next year from 1.6 per cent this year, according to ECB forecasts.

"We are considering both standard and non-standard measures" to increase stimulus, Draghi said.

Draghi spoke hours after Bank of Japan Governor Haruhiko Kuroda began his unprecedented onslaught to end 15 years of deflation.

The Bank of England kept its main lending rate unchanged at 0.5 per cent and refrained from expanding its stimulus programme.

In Europe, evidence is mounting that the 17-nation euro economy is struggling to exit a recession that began more than a year ago, partly as financial institutions restrict access to credit.

The ECB's measure of bank lending to the private sector fell for a 10th month in February, dropping 0.9 per cent from a year earlier. Euro-region manufacturing and services activity, measured by surveys of purchasing managers, contracted more than economists forecast in March.