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Draghi Says ECB Is "Far" From Exiting Stimulus

Draghi Says ECB Is
2/28/2013 12:24 AM ET

European Central Bank President Mario Draghi indicated that the central bank is in no hurry to exit stimulus as he anticipates inflation to come significantly below the bank's target this year, giving room for maintaining an accommodative monetary stance.

ECB policymakers are "far" from considering an exit from the current accommodative stance, Draghi said during a speech at the Catholic Academy of Bavaria on Wednesday. He said the central bank forecasts next year's inflation to be significantly below the 2 percent target.

Draghi pointed out that ECB's balance sheet will be subjected to "natural shrinking" as banks start to repay emergency loans.

"It is important to stress that the ECB's mandate only extends so far. There are clear limits to what monetary policy can and should aim to achieve," the policymaker said.

"We cannot repair unsound budgets. We cannot clean up struggling banks. We cannot solve deep-rooted problems in the structure of Europe's economies," he added.

Speaking in Frankfurt yesterday, ECB Executive Board member Yves Mersch said maintaining the non-standard measures for too long a period gives wrong incentives and leads to "moral hazard."

Another board member Peter Praet, speaking at a separate event, opined that monetary policy is a relatively blunt instrument that will not in itself change the fundamental course of economic developments, when imbalances are plural and lie outside its sphere of responsibilities. The longer the central bank carry on with a highly accommodative policy, it will become less effective, he added.

by RTT Staff Writer

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