European Central Bank

ECB expects gradual recovery in euro zone

PUBLISHED : Tuesday, 04 June, 2013, 12:00am
UPDATED : Tuesday, 04 June, 2013, 3:57am

The European Central Bank expects a "very gradual recovery" in the debt-hit euro zone to start later this year, the bank's chief said yesterday.

"The economic situation in the euro area remains challenging but there are a few signs of a possible stabilisation," ECB president Mario Draghi told a monetary conference. "Our baseline scenario continues to be one of a very gradual recovery starting in the latter part of this year."

The debt crisis that has engulfed several euro-zone nations has led to speculation of a possible break-up of the monetary union, but Draghi played down the prospect.

"Now the union is more resilient and stable than before," he said in a question-and-answer session. "The overall view is, it's here to stay."

Draghi said the ECB would "continue to support macroeconomic performance by ensuring price stability in the euro area". He did not directly answer a question on quantitative easing but said the EU had "narrower channels" to do this than the United States.

The ECB holds a key policy meeting later this week. Last month, it cut interest rates in an attempt to stimulate the zone's recession-ridden economy, shaving a quarter percentage point off its refinancing rate to 0.5 per cent.

The ECB has two other key rates: the deposit rate, paid to banks to park excess cash with the ECB; and the marginal lending rate, used as a last resort for banks unable to obtain funding in the wholesale market.

The two effectively act as the floor and ceiling for interest rates in the 17-country zone. The ECB has pared back the marginal lending rate by half a point to 1 per cent but left the deposit rate unchanged at zero.

"In calibrating our policy response to future challenges, the ECB will remain deeply committed to our monetary policy framework," Draghi said.

Such policies required "firmly preserving our central bank independence" to ensure a "sound institutional anchor" that enabled the organisation to earn "trust and respect", he said.