European Central Bank President Mario Draghi said on Friday that there is no inflation risk in Eurozone, and urged politicians to take steps to tackle the debt crisis in the currency bloc.
"Inflation expectations remain well anchored and there is no inflation risk in any euro area country," Draghi said in a speech at the 14th ECB Watchers Conference in Frankfurt.
"And should risks to price stability emerge, the Eurosystem has sufficient tools at its disposal to absorb excess liquidity."
After leaving the key interest rate unchanged at 1 percent last week, the ECB is widely expected to cut rate next month given the weakening economy. Some policymakers have hinted that they favor cutting the rates.
An 'unambiguous commitment' to price stability has been the central bank's best contribution to mitigating the fallout from the crisis, Draghi said. "This commitment will continue to guide our policy in the time to come."
He urged European politicians to take more efforts to stem the crisis. "We've reached a contingency where political choices have become predominant over monetary instruments that we can use in the near future," the ECB chief said.
Crisis-hit Greece is set to hold its crucial second round of parliamentary election this weekend, the outcome of which could decide whether or the not the country would continue in the euro area.
Major central banks have said they stand ready to take emergency steps, separately or jointly, to ensure financial market stability in the event of any fallout from a possible 'Grexit'.
Stressing on the ECB's crucial role of providing liquidity, Draghi said, "This is what we have done throughout the crisis, faithful to our mandate of maintaining price stability over the medium term - and this is what we will continue to do."
"The Eurosystem will continue to supply liquidity to solvent banks where needed," he added.
He also stated that the objectives of the ECB's three-year long term financing operations or LTROs have been 'broadly met'. Citing evidence from the April bank lending survey, Draghi said supply side constraints on bank credit have been removed.
"The full supportive impact of the three-year LTROs needs time to unfold," the central bank chief said.
Draghi has been working with European Council President Herman Van Rompuy, European Commission President Jose Manuel Barroso and Eurogroup President Jean-Claude Juncker on a longer-term vision for Europe's economic and monetary union.
The details of the vision would be made public 'very soon', the Italian banker said. "Markets and people needed to be assured that we're traveling together," he said.
by RTT Staff Writer
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