ECB’s Draghi says too early for stimulus exit
FRANKFURT AM MAIN: European Central Bank chief Mario Draghi asked for patience for his policies to work as he brushed aside calls to change course following a spike in inflation.
As expected, the ECB’s 25-member governing council left its key interest rates and mass bond-buying programme unchanged in the first policy meeting of the year.
Draghi said the time would come when the bank would start scaling back its unprecedented stimulus measures. “But we are not there,” he told journalists at a press conference after the meeting.
He added that the governing council had not even discussed winding down the bank’s asset purchasing scheme, which is known as quantitative easing (QE) and is designed to encourage spending and investment.
“We didn’t discuss tapering,” he said.
Just last month, policymakers chose to extend the scheme from March to December this year, albeit slowing the pace of purchases from 80 billion to 60 billion euros (US$85 billion to US$64 billion) per month from April.
But a sudden jump in inflation from 0.6 per cent in November to 1.1 per cent in December – and as high as 1.7 per cent in Germany – has emboldened critics of the bank’s loose monetary policy.
Prominent economists and politicians in Germany, where savers are seeing their cash piles shrinking, are already clamouring for a rate rise.
But Draghi pointed to rising oil prices as the main driver of headline inflation, while core inflation – which excludes volatile energy and food prices – remains sluggish.
“There are no signs yet of a convincing upward trend in underlying inflation,” Draghi said.
“Even though inflation has increased markedly, we know it’s mainly driven by energy, and at this point in time the governing council decided to look forward.”
Meanwhile, wage growth remains subdued and “risks coming from global uncertainty” threaten the fragile eurozone recovery, the bank president said.
“It will need a significant increase in core inflation and wages before the ECB would consider a further, faster or earlier reduction of QE,” analyst Carsten Brzeski of ING Diba bank predicted. — AFP