ECB's Draghi Says Eurozone Recovery Still Dependent On QE
November 17 2017 - 3:29AM
RTTF2
Eurozone's robust economic recovery is still supported by the
massive monetary stimulus that would help inflation to return to
target, European Central Bank President Mario Draghi said
Friday.
"A key motor of the recovery remains the very favourable
financing conditions facing firms and households, which are in turn
heavily contingent on our policy measures," Draghi said in a speech
in Frankfurt.
"An ample degree of monetary stimulus remains necessary for
underlying inflation pressures to build up and support headline
inflation over the medium term."
Late October, the ECB said the size of its monthly asset
purchases will be halved to EUR 30 billion at the start of next
year, but they will continue for nine months.
Draghi said the October decisions "aim to signal our growing
confidence in the euro area economy, while also acknowledging that
we must be patient and persistent for inflation to return
sustainably to our objective."
The bank opted the "lower for longer" style of tapering for a
second time this year and many hope this would be the beginning of
the end of ultra-easy monetary policy since the 2007-08 global
financial crisis.
The ECB Chief said the extension of asset purchases helps to
maintain the necessary degree of accommodation and thereby to
accompany the economic recovery in an appropriate way.
The bank's forward guidance suggest that it will keep interest
rates low for the duration of its bond purchases and well beyond
their lifespan. This is an attempt to anchor rate hike expectations
during that time and after the end of asset purchases, Draghi
said.
"Asset purchases matter also for the signals they entail about
the path of future policy rates: the so-called "signalling effect",
Draghi said.
"The signalling effect of asset purchases has therefore
naturally increased in prominence relative to the duration effect,"
he added.
Further, Draghi said this explains why the October decision to
reduce the pace of purchases while extending the horizon "left, on
impact, financial conditions largely unchanged".
Draghi also reiterated that there was little evidence that the
ECB's ultra-easy monetary policy was hurting bank profitability and
cited that net interest income has remained quite stable over the
past two years.
Expressing concern over the lack of upward momentum in the
underlying inflation in the euro area, Draghi said a key issue in
this context was weaker wage growth.
"With well-anchored inflation expectations, the effects of past
low inflation in wage formation should not be persistent," he
said.
"And as the labor market tightens and uncertainty falls, the
relationship between slack and wage growth should begin reasserting
itself. But we have to remain patient."
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