ECB ready to adjust quantitative-easing
The European Central Bank is ready to adjust its quantitative-easing program to respond to any market turbulence amid "unusually low" inflation and "disappointing" economic growth in the euro area.
"While recent market volatility had not materially changed the assessment of the economic outlook, continued elevated uncertainty called for alertness and a readiness to respond, if necessary," the ECB said in a summary account of its July 15-16 monetary-policy meeting. Governors agreed that "the design of the assetpurchase programs provided sufficient flexibility for them to be adapted if circumstances were to change and should the need arise," according to the report. Policy makers expressed concern that while inflation in the 19-nation currency bloc seems to have bottomed out, the region's recovery remains threatened by the Greek crisis and by turmoil in emerging markets. President Mario Draghi said in his July 16 press conference in Frankfurt that the ECB stood ready to use all the tools within its mandate to counter any unwarranted tightening in monetary policy.
The euro-area economy probably expanded 0.4 percent in the second quarter, unchanged from the previous three months, and a final reading of inflation held at 0.2 percent in July, according to Bloomberg surveys. Eurostat in Luxembourg will release those reports at 11 a.m. on Friday.
"The recovery in the euro area was expected to remain moderate and gradual, which was considered disappointing," the ECB said in the accounts. "Despite the increase observed since the start of the year, consumer price inflation had remained unusually low."
ECB Executive Board member Peter Praet told the Governing Council that a recent decline in oil prices pointed to "renewed downward pressure" on inflation in coming months. Even so, core inflation, which strips out food and energy, showed signs of acceleration and price growth was expected to pick up toward the end of the year. "While it was still too early to confirm that a turning point had been reached in underlying inflation, the key drivers of an upturn appeared to be proceeding broadly as projected," the report said. "Medium-term inflation expectations had recovered some of the ground lost since the summer of last year."
Governors decided to continue to "closely monitor" financial markets. They assessed that the July agreement between Greece and its creditors to start bailout talks "significantly reduced" the risks of negative repercussions across the region. They also said turbulence in Chinese financial markets may have a "larger-thanexpected adverse impact" because of the country's prominence in global trade. China shocked investors this week by allowing markets greater sway in setting the yuan's exchange rate, triggering the currency's biggest selloff in 21 years and roiling global markets.