Draghi Signals ECB May Boost Stimulus Later This Yearby
ECB head also calls for structural reforms, bad-loan solution
Governing Council kept interest rates and QE program unchanged
Mario Draghi said the European Central Bank won’t hesitate to add fresh stimulus if needed once it has a clearer picture of the economic impact from the U.K.’s vote to leave the European Union.
“If warranted to achieve its objective, the Governing Council will act by using all instruments available within its mandate,” the ECB president told reporters in Frankfurt on Thursday. “I would stress readiness, willingness, ability, to do so.”
While Draghi declined to elaborate on what action might be taken, saying that “no attention was given to discussing specific instruments,” he stressed the downside risks the euro area still faces. Those include Brexit, too-slow inflation and a looming banking crisis in Italy on which he commented at length.
Officials must also work out how much further they can push their unprecedented easing without running into constraints such as bond shortages. Draghi said the Governing Council didn’t discuss tapering its asset purchases.
The ECB chief spoke after the 25-member Governing Council kept its main refinancing rate at zero, the deposit rate at minus 0.4 percent and quantitative easing at around 80 billion euros ($88 billion) a month, as predicted in a Bloomberg survey. Economists foresee the central bank waiting until its next monetary-policy meeting on Sept. 8 to add stimulus, most likely by extending quantitative easing.
German 10-year bund yields touched the highest level in four weeks, climbing as high as 0.029 percent. The euro declined 0.2 percent to $1.0995 at 4:57 p.m Frankfurt time.
Some banks predict the central bank will run into shortages of certain bonds as its QE program hoovers up debt faster than governments issue it. That has led to suggestions that the program might need to be adjusted by relaxing self-imposed rules on bond eligibility.
“In the past, we’ve given enough evidence not only of our readiness, willingness to act but also to be able to adapt our programs so as to reach the objective of a purchase of 80 billion euros a month,” Draghi said. “I think in worrying about the coming months, whether we’ll actually be able to fulfill this objective, proper attention should be given to evidence we’ve given in past few months and the ability to exploit flexibility.”
The Bank of England also put off fresh stimulus last week. The U.K. central bank kept interest rates and its asset-purchase facility on hold, signaling instead that most policy makers expect to act at the next meeting on Aug. 4.
“Following the U.K.’s referendum, financial markets have weathered the spike in volatility with encouraging resilience,” Draghi said. “At same time, given prevailing uncertainties, the Governing Council will continue to monitor economic and financial developments closely.”
The president said that a survey of professional forecasters scheduled to be published on Friday showed that Brexit had no major impact on the outlook by analysts for euro-area inflation. The survey sees consumer-price growth at 0.3 percent this year, 1.2 percent next year, 1.5 percent in 2018, and 1.8 percent in the medium-to-long term, he said.
He reiterated his call for governments to do more to support monetary stimulus, saying that “other policy areas must contribute much more decisively.” He urged a focus on raising productivity and improving the business environment.
Draghi also devoted a substantial portion of the press conference to the debate over how to relieve Italian banks from the burden of their non-performing loans. The country’s government is trying to find a way to recapitalize some lenders without burdening subordinated bondholders -- many of whom are ordinary families -- but also without falling foul of European Commission rules on state aid.
“It’s a big problem; it’s going to take time,” he said. A public backstop is “a measure that would be very useful” but which “should be agreed with the commission according to existing rules.”