Draghi Sees No ‘Immediate’ Need for More Rate Cuts, Spiegel Says
European Central Bank President Mario Draghi sees no need for further cuts to the institution’s benchmark rate amid “encouraging signs” that the euro crisis may be resolved, Der Spiegel reported, citing an interview.
“At the moment we see no immediate need to act” on the main refinancing rate, the magazine cited Draghi as saying. “The crisis isn’t over, but there are many encouraging signs.”
The ECB last month slashed its key rate by a quarter point to a record low of 0.25 percent as the Frankfurt-based central bank warned that the euro area may face a “prolonged period” of low inflation. In the interview published today, Draghi said that there are no signs of deflation, adding that “we don’t have a situation as in Japan.”
Positive signs for the currency bloc include an economic recovery in several countries, diminishing imbalances in European trade and decreasing budget deficits, Spiegel cited Draghi as saying. The improvements exceeded the ECB’s projections from a year ago, according to the magazine.
The euro area’s recovery almost came to a halt in the third quarter, with growth slowing to 0.1 percent as France’s economy unexpectedly shrank and Italy extended its longest postwar recession. The latest data are more encouraging, with output from euro-area factories and consumer sentiment both rising more than economists forecast in December.
Jens Weidmann, president of Germany’s Bundesbank, told the newspaper Bild that the current “calm” on financial markets may be deceiving. “Subdued price pressure shouldn’t be a license for arbitrary monetary-policy easing,” Weidmann was cited as saying.
The ECB is weighing other tools beside the main refinancing rate to rekindle growth. Offering more long-term loans to banks would only make sense when those lenders are in a position to extend credit to companies and households, ECB Executive Board member Benoit Coeure said Dec. 9.
This month’s announcement by the U.S. Federal Reserve to taper the pace of its bond purchasing didn’t have a large effect as “markets are more resilient than they were a year ago,” Draghi was cited as saying by Spiegel.
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