EU quantitative easing policy is working, says Draghi
THE EUROPEAN Central Bank’s (ECB’s) ultra-easy monetary policy is working and the euro zone’s economic recovery has taken hold, even if more time is needed to lift inflation to the bank’s 2 percent target, ECB President Mario Draghi said on Friday.
Speaking at the US Federal Reserve’s annual conference in Jackson Hole, Wyoming, Draghi said he was confident inflation would eventually reach the target as output rises and the labour market tightens, though he urged patience on that front.
While ECB stimulus has pushed euro zone growth to above 2 percent, the fastest since 2011, inflation is expected to undershoot the bank’s target at least until 2019, a dilemma for its policymakers who, unlike those at the Fed, only have an inflation mandate.
“On one hand we are confident that as the output gap closes inflation will continue converging to its objective over the medium term,” Draghi said in response to a question after his speech. “On the other hand, we have to be very patient, because the labour market factors and the low productivity are not factors that are going to disappear any time soon.”
ECB policymakers are running out of time to resolve this dilemma as they have agreed to decide this autumn whether to extend or wind down the bank’s €2.3 trillion (R35.68trln) asset purchase programme, which is due to expire in December.
“We have not seen yet the self-sustained convergence of inflation to the mediumterm objective,” Draghi said. “Therefore a significant degree of monetary accommodation is still warranted,” he added, repeating the bank’s long standing line on stimulus.
The euro soared to its highest level in more than two years against the dollar on Friday on Draghi’s initial comments, which did not mention monetary policy, but eased slightly after his more dovish comments.
But Draghi warned that while stimulus has boosted economies around the world, the growing tide of protectionism threatened to thwart trade, cap productivity and ultimately hold back growth.
He acknowledged that globalisation has left pockets of society on the fringes, fostering distrust to threatening long-held trust in openness and international cooperation.
Draghi’s comments came as the Trump administration advocates a more protectionist approach, threatening to renegotiate or pull out of trade deals including the North American Free Trade Agreement with Canada and Mexico.