Plus   Neg

Draghi Affirms ECB Readiness To Act As Economic Outlook Dims


The European Central Bank President Mario Draghi on Wednesday said the bank stands ready to deploy more policy tools, if any contingency warranted given the weaker growth outlook, and added that policymakers were studying the impact of the negative deposit rate on bank profitability, which suggest they may announce some relief measures for banks in coming months.

"The Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation continues to move towards the Governing Council's inflation aim in a sustained manner," Draghi said in the introductory statement to his customary post-decision press conference in Frankfurt.

Earlier on Wednesday, the ECB maintained all of its three interest rates and the forward guidance.

In the March meeting, the ECB decided to offer more cash at cheaper rates to banks via long-term loans to boost lending to a slowing economy. The bank also slashed the growth and inflation forecasts for the euro area.

The new series of targeted longer-term refinancing operations, or TLTRO-III, is set to start in September this year and end in March 2021, thus with a maturity of two years.

"Details on the precise terms of the new series of targeted longer-term refinancing operations (TLTROs) will be communicated at one of our forthcoming meetings," Draghi said.

"In particular, the pricing of the new TLTRO-III operations will take into account a thorough assessment of the bank-based transmission channel of monetary policy, as well as further developments in the economic outlook."

Draghi also said policymakers will also consider whether the preservation of the favorable implications of negative interest rates for the economy requires the mitigation of their possible side effects, if any, on bank intermediation.

That said, policymakers are waiting for more information that will come between now and June, Draghi added.

A measure speculated by markets is a tiered deposit rate that can partly reduce the burden of the cost banks pay on the cash they park at the ECB.

However, ECB policymakers are wary of a tiered deposit rate as they fear it could signal that interest rates are going to remain low for a long time.

The new forward guidance issued in March suggest the bank expects the first interest rate hike since the financial crisis to take place in 2020.

Eurozone interest rates were raised last in July 2011, by 25 basis points.

The ECB Chief reiterated that the risks to the Eurozone growth outlook were tilted to the downside, however, the "estimated probabilities of a recession" remained low.

"The persistence of uncertainties, related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets, is leaving marks on economic sentiment," Draghi said.

"At the same time, further employment gains and rising wages continue to underpin the resilience of the domestic economy and gradually rising inflation pressures."

Further, Draghi said the incoming data continue to be weak, especially for the manufacturing sector, mainly on account of the slowdown in external demand. The impact of these factors is turning out to be somewhat longer-lasting, hence, the bank expects the slower growth momentum to extend into the current year.

Speaking to reporters, Draghi said policymakers were confident of inflation hitting the ECB target of "below, but close to 2 percent", if the rates remained unchanged.

However, they would be less confident if rates were raised, he added.

Regarding the latest policy session, Draghi said the main goal was to "reassert the readiness to act if the contingency warranted." So it was not an operational meeting, he said.

On Brexit, Draghi said the confusion over the deal was "part and parcel of the overall uncertainty hanging" over Europe.

The International Monetary Fund on Tuesday slashed the global growth forecast for this year, citing the trade tensions, weaker business confidence, tighter financial conditions and higher policy uncertainty.

The global lender warned that the UK economy would lose about 3.5 percent of GDP by 2021 in a no-deal Brexit.

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