European Central Bank President Mario Draghi said on Wednesday the stimulus measures adopted by the bank since January will stabilize inflation in line with the target and that they are working their way into the real economy.
"We can deploy - and we are deploying - monetary policy in a way that can - and will - stabilise inflation in line with our objective," Draghi said his speech at the ECB Watchers Conference in Frankfurt.
ECB and the national central banks began asset purchases under its public sector purchase programme on Monday. The decision to buy euro area government bonds had met strong opposition from German policymakers, who felt the deflation threat in Eurozone was not severe enough to warrant stimulus.
In January, the bank announced its massive $1.1 trillion quantitative easing, under which it will buy EUR 60 billion worth of bonds every month until September 2016, or until inflation moves in line with its aim of 'below, but close to 2 percent'.
Euro area consumer prices fell for a third successive month in February, but the pace of decline slowed to 0.3 percent from January's 0.6 percent, preliminary estimates from Eurostat revealed last week. In January, producer prices decreased the most since November 2009.
Asset purchases are 'nothing new' and they have been available and routinely used by central banks, Draghi said. The legitimacy of ECB's decision to purchase government bonds was 'unanimously confirmed by the Governing Council' on January 22, he added.
"Asset purchases are unconventional, but they are not unorthodox. They are in fact eminently orthodox," the ECB Chief said.
Taking note of the substantial falls in euro area sovereign yields, Draghi said, "We also saw a further fall in the sovereign yields of Portugal and other formerly distressed countries - in spite of the renewed Greek crisis."
"This suggests that the asset purchase programme may be shielding other euro area countries from contagion, which also helps us achieve our monetary policy goals across the euro area," he added.
Greece is holding technical talks with its international creditors to agree on its fresh list of reforms. Creditors' approval of the reforms could unlock further financial aid for the country.
Citing market reactions and experience in other countries, Draghi said the asset purchase programme can work.
"The slowdown in growth has reversed...Our monetary policy is certainly supporting the recovery," Draghi noted. The Eurozone economy expanded 0.3 percent in the fourth quarter on broad-based support from spending, investment and exports.
In their latest projections, the ECB Staff raised the euro area growth forecast for this year to 1.5 percent from 1 percent seen in December. The projection for next year was boosted to 1.9 percent from 1.5 percent.
"The ECB staff projections fully incorporate the estimated impact of our policy measures," Draghi said. "They are thus conditional on the full implementation of all the announced measures."
The ECB Chief Economist Peter Praet also spoke at the event. "Expanding our asset purchases at a critical juncture demonstrated that we were not dominated in any form," he said.
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