ECB President Mario Draghi Holds Policy Steady
As the European Central Bank (ECB) nears the end of its stimulus program, President Mario Draghi gave a speech on how the bank perceives Europe’s economy. His words were closely watched by investors who want to forecast the direction of monetary policy for the currency bloc.
The key highlight was that the ECB chose to hold interest rates steady. Some analysts were worried they would move into negative territory like the Bank of Japan, while others were concerned about a move in the opposite direction. They believed the bank was ready to taper.
Advertisement
Both sides were proven wrong as Draghi announced that the ECB would hold steady for the time being. (Source: “Draghi Sees Rates Lower for Extended Period of Time,” Yahoo! Finance, October 20, 2016.)
“Based on our regular economic and monetary analysis, we decided to keep the key ECB interest rate unchanged,” Draghi said at a press conference. “We continue to expect them to remain at present or lower levels for an extended period of time, and well past the horizon of our next asset purchases.”
He straddled the line between optimism and pessimism by acknowledging that the economy still has room to grow, even though its recovery has been in line with expectation. There was no sense of urgency to cut rates in his remarks, nor was there any insistence that rates must rise in March 2017.
“The information that has become available since our meeting in early September confirms a continued moderate, but steady, recovery of the Euro-area economy and a gradual rise in inflation in line with our previous expectations,” he said. “The Euro-area has continued to show resilience to the adverse effects of global economic and political uncertainty, aided by our comprehensive monetary policy measures, which ensure very favorable financing conditions for firms and households. Overall, however, the baseline scenario remains subject to downside risks.”
Although Draghi seems ready to honor the original timeline of the rate hike, he left the door open for further stimulus. The decision could be shaped by new staff macroeconomic projections which come out in December. They lay out forecasts through 2019, meaning their inflation predictions could help the central bank decide if more monetary stimulus is needed.
