The European Central Bank said it is prepared to act if needed to curb inflation pressures even as downside risks to the economic outlook prevail.
“All the necessary tools are available to address upside risks to medium-term price stability in a firm and timely manner,” the Frankfurt-based central bank said in its monthly bulletin today, echoing President Mario Draghi’s April 4 policy statement. While “a moderate recovery in activity is expected in the course of the year,” the “outlook remains subject to downside risks,” it said.
The ECB is trying to balance the threat of inflation in Germany, Europe’s largest economy, with recessions in half the region’s member countries and a resurging debt crisis. While Spain’s borrowing costs have jumped amid investor concern about the country’s ability to repay its debts, workers in Germany are winning some of the biggest pay increases in 20 years.
“The Governing Council will pay particular attention to any signs of pass-through from higher energy prices to wages, profits and general price-setting,” the ECB said. “However, looking ahead, in an environment of modest growth in the euro area and well-anchored long-term inflation expectations, underlying price pressures should remain limited.”
All non-standard policy measures are “temporary in nature,” the ECB said. Still, Draghi said last week that any talk of an exit from the measures is premature. The ECB kept its benchmark rate at a record low of 1 percent on April 4.
ECB Executive Board member Benoit Coeure yesterday suggested the bank could revive its bond-purchase program to reduce Spain’s borrowing costs.
The ECB hasn’t purchased any government bonds for four weeks after its injection of more than 1 trillion euros ($1.3 trillion) of three-year loans helped unlock credit markets.