ECB Policy Makers Say Accommodative Monetary Policy to Stay
European Central Bank policy makers including President Mario Draghi said they’ll maintain a loose monetary stance for as long as needed, while urging euro area governments to cut their deficits and boost investment.
The ECB’s monetary policy “will stay accommodative for the foreseeable future,” Draghi said today in a speech at the French National Assembly in Paris. “We have an open mind about all other possible instruments that we may consider proper to adopt.” An exit is “very distant,” he said at a press conference.
Financial markets have tumbled amid concern monetary stimulus will be withdrawn since U.S. Federal Reserve Chairman Ben S. Bernanke said last week that policy makers may start slowing the pace of bond buying later this year and end it in 2014. Draghi’s position was reiterated in later speeches by ECB Executive Board members Joerg Asmussen and Yves Mersch, and Governing Council member Christian Noyer. Central bankers from the Bank of England to the Fed yesterday said they are still a long way off from tightening.
Global stocks rose for a second day today and bonds rallied while commodities dropped. The euro slid for a sixth day, declining as much as 0.7 percent to $1.2985, the weakest intraday level since June 3. The currency was at $1.2999 at 6:11 p.m. in Frankfurt.
“It is clearly too early to exit now,” Asmussen said at a separate event in Paris. “Inflation expectations are very well anchored. In this situation, our monetary policy is expansionary and will remain expansionary for as long as needed.”
“The ECB’s Governing Council has stressed that monetary policy will remain accommodative for as long as necessary,” Noyer said at the same event. “In the period ahead, we will monitor very closely all incoming information on economic and monetary developments and stand ready to act if necessary.”
“We’ll continue with our accommodative monetary policy, which means there will be no exit in the foreseeable future,” Mersch said in the French capital. The ECB’s main contribution now is “to remain predictable,” he said.
The Frankfurt-based ECB cut its benchmark interest rate to a record-low 0.5 percent in May after a six quarters of contraction in the 17-nation currency bloc. At the same time, euro-area members including France, Spain and Italy have been granted more time by euro-area governments to bring their budget deficits into line with the region’s rules. As they do so, they should take care not to hinder their economies in the longer term, Draghi said today.
Countries should “ensure that fiscal consolidation, which is necessary to contain debt levels, is made as growth-friendly as possible,” he said. “Relying less on tax increases would help sustain citizens’ disposable income. Prioritizing capital investment over current spending would do more to lay the foundations for future growth.”
Draghi said that the ECB’s primary mandate to ensure price stability doesn’t prevent it from taking action to spur economic growth.
“It never stood between working for growth,” he said. “It’s never been an obstacle. The stance here is to go back to the base scenario, persevere with the monetary policy stance that we have, wait for this return of confidence to find its way into the economy.”
Still, Draghi said governments must act to reduce unemployment and maintain social models without creating an unsustainable debt burden for future generations. The euro-area jobless rate rose to a record 12.2 percent in April, the European Union’s statistics office in Luxembourg said May 31.
“It is important to acknowledge that there are limits to what monetary policy can achieve,” Draghi said. “Monetary policy cannot create real economic growth. If growth is stalling because the economy is not producing enough or because firms have lost competitiveness, this is beyond the power of the central bank to fix.”
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