Draghi Says ECB Has ‘Open Mind’ on Non-Standard MeasuresJeff Black and Stefan Riecher
European Central Bank President Mario Draghi said the central bank is considering further non-standard monetary policy tools and will deploy them if circumstances warrant.
“We will look with an open mind at these measures that are especially effective in our institutional setup and that fall within our mandate,” Draghi said today in a speech in Jerusalem. “Some of those measures may have unintended consequences. This does not mean that they should not be used, but it does mean that we need to be aware of those consequences and manage them appropriately.”
Draghi has in recent months held out the possibility of charging lenders to hold cash at the Frankfurt-based central bank by introducing a negative deposit rate. The rate has been at zero since July. That’s one of a range of tools, including further long-term lending operations and adjusting collateral requirements, that the ECB is mulling as the 17-member euro area remains stuck in its longest-ever recession.
“There are numerous other measures – standard interest rate policy and non-standard measures – that we can deploy and that we will deploy if circumstances warrant,” Draghi said.
The euro fell as much as 0.3 percent to $1.3326 after Draghi’s comments. It later reversed its decline to trade at $1.339, up 0.2 percent, at 10:41 a.m. in Frankfurt. The euro has strengthened 1.5 percent against the dollar in 2013 and 4.5 percent, the most among 10 developed-market currencies, according to Bloomberg Correlation-Weighted Indexes.
The euro’s rise this year shows that some investors are confident Draghi and government officials are doing enough to hold the currency union together. It also threatens the ability of member nations to export their way out of recession after six quarters of economic contraction. While the ECB doesn’t target the exchange rate, Draghi has said that it is “important for growth and price stability.”
Domestic demand in the euro area should benefit from the ECB’s monetary policy, lower inflation and confidence as well as wealth effects from gains in financial markets, Draghi said today. The bank on May 2 cut its benchmark interest rate by a quarter point to a record low of 0.5 percent
“The ECB’s Governing Council has stressed that monetary policy will remain accommodative for as long as necessary and let me say very clearly: we are far from any exits,” Draghi said.
Save the Euro
The ECB President also reiterated the central bank’s mission to save the common currency. Policy markers will do “whatever it takes” to keep the euro, Draghi said today, referring to his comments from a speech in London on July 26.
“In the period ahead, we will monitor very closely all incoming information on economic and monetary developments and stand ready to act if necessary,” he said.
The ECB’s Outright Monetary Transactions bond-purchasing program, which has yet to be used, has caused a significant decline in financial-market tension since its introduction last year, according to Draghi.
In setting up a banking union, the European Union is moving toward a longer-term solution to the crisis, he said, while calling for further reforms by national governments.
The banking union “should provide an answer to many of the challenges currently facing the euro area, including uneven credit conditions and the fragmentation of financial markets,” Draghi said. “Much work remains to be done for economic policy makers across Europe. Reforms need to continue.”