Draghi says ECB will reassess stimulus measures next year
Central bank president Mario Draghi warns of deflationary spiral and postponed spending
European Central Bank policymakers will gauge the need for further stimulus at the beginning of 2015, president Mario Draghi said as he unveiled "substantially" lower forecasts for inflation and growth.
The governing council will reassess the effects of existing monetary stimulus "early next year," Draghi said yesterday. He announced that the central bank has cut all its forecasts for gross domestic product and price gains through 2016. Since June, the central bank has cut interest rates twice, offered cheap loans to banks to spur lending and started purchase programs for covered bonds and asset-backed securities.
With euro-area inflation well below the ECB's target, Draghi has warned of a deflationary spiral of falling prices and households postponing spending.
The current measures will have "a sizeable impact on our balance sheet, which is intended to move towards the dimensions it had at the beginning of 2012," Draghi said.
That comment altered the ECB's language on its ambitions for the size of the balance sheet. It previously stated that such an increase was "expected" rather than "intended."
The decision to change wording was not unanimous, Draghi said, adding later that policy makers wouldn't need unanimity to start broad-based asset purchases either.
Draghi said that officials will be "particularly vigilant" on the effects of oil prices, whose recent declines couldn't be factored in to the forecasts released yesterday. The ECB now predicts the 18-currency bloc economy will expand 0.8 per cent this year, 1 percent in 2015 and 1.5 per cent in 2016. It expects consumer prices will rise 0.5 per cent in 2014, 0.7 per cent next year and 1.3 per cent in 2016.
The euro rose as Draghi spoke, trading at US$1.2344, Frankfurt, up 0.3 per cent yesterday.
The 24-member governing council left the main refinancing rate at a record-low 0.05 per cent yesterday. The deposit rate remained at minus 0.2 per cent and the marginal lending rate at 0.3 per cent.
"Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council remains unanimous in its commitment to using additional unconventional instruments within its mandate," Draghi said.
