Draghi, Constancio Confident That ECB Will Reach Inflation Goal

Updated on
  • Governing Council prepares for Oct. 26 decision on QE
  • Underlying price pressures still lack convincing upward trend

With the European Central Bank’s next policy update less than two weeks away, the institution’s top officials are expressing confidence that they will eventually succeed in returning inflation to their goal.

Mario Draghi

Photographer: Andrew Harrer/Bloomberg

“We are confident that as the conditions will continue to improve, the inflation rate will gradually converge in a self-sustained manner, as we’ve defined many times, and in a durable way to our objective,” ECB President Mario Draghi told reporters in Washington on Saturday. “But together with our confidence we should also be patient because it’s going to take time.”

Draghi’s confidence was reiterated by Vice President Vitor Constancio on Sunday, and comes as policy makers prepare for a meeting on Oct. 26 that is widely expected to set out the plan for their bond-buying program past the end of this year. While the ECB currently purchases 60 billion euros ($71 billion) of assets per month, officials are debating how they may be able to scale back some of that stimulus to adapt to an improving economy.

The ECB president repeated on the sidelines of the annual meetings of the International Monetary Fund that the Governing Council intends to take the “bulk” of its decisions this month. Constancio added that the Governing Council’s actions will focus on “safeguarding the monetary policy impulse that is still necessary to secure a sustained adjustment in the path of inflation.”

“The euro area economy is experiencing a broad-based, robust and resilient recovery,” Constancio said. “Despite this favorable growth dynamic, inflation developments have been subdued. We remain confident that the continued closing of the output gap will lead inflation to return to our medium-term objective.”

One idea that has been publicly floated by the institution’s chief economist, Peter Praet, is a bigger reduction in monthly buying in exchange for a longer duration of the program. Draghi told reporters that Praet “had said it very well.”

Convincing Upward Trend

Subdued nominal wage growth is currently the main factor holding down underlying price pressures, which still don’t show “a convincing sign of moving upward,” Draghi said. 

“Therefore, we’ve got to be persistent with our monetary policy,” he added. “We also have to be prudent” and will maintain “an extraordinary degree of monetary accommodation.”

ECB officials are considering cutting their monthly bond buying by at least half starting in January and keeping their program active for at least nine months, according to officials familiar with the debate.

Governing Council member Ignazio Visco said at a conference in Washington that “I would prefer not to have specific dates and periods” when it comes to phasing out QE because “we need the flexibility that is in the program.”

He argued that any recalibration of policy instruments should be data-dependent, particularly when it comes to inflation.

“We have to make sure we’re on a path that is sustained,” Visco said. “And we have to be careful that if we get a decision, this decision shouldn’t be reversed.”

— With assistance by Piotr Skolimowski, and Mark Deen

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