Draghi: ECB Continues To See Prolonged Period Of Low Inflation

MarioDraghi 010914

European Central Bank President Mario Draghi reiterated on Thursday that the 18-nation economy is set to experience a protracted period of low inflation and asserted that the bank will maintain easy policy for as long as needed.

"We may experience a prolonged period of low inflation, to be followed by a gradual upward movement towards inflation rates below, but close to, 2 percent later on," Draghi said in his introductory remarks at the customary post-decision press conference in Frankfurt.

"Against this background, the Governing Council strongly emphasises that it will maintain an accommodative stance of monetary policy for as long as necessary, which will assist the gradual economic recovery in the euro area."

During the question-and-answer session later on, Draghi confirmed that stronger words were used this month to describe ECB's accommodative stance.

Earlier today, the ECB maintained the key interest rates unchanged for a second straight month. The main refi rate was held at a record low 0.25 percent.

"We firmly reiterate our forward guidance that we continue to expect the key ECB interest rates to remain at present or lower levels for an extended period of time," Draghi said.

He pointed out that inflation expectations over the medium to long term are "firmly anchored" to the ECB's 'below, but close to 2 percent' target.

Eurozone inflation slowed unexpectedly in December to 0.8 percent from 0.9 percent in the previous month. The figure has held below the ECB's target for eleven months, triggering deflationary worries.

Responding to reporters' questions, Draghi said he expects inflation to remain below 2 percent for at least two years. That said, he ruled out the prospect of a Japan-style deflation in the euro area.

The central bank chief also said that the bank is watching market conditions closely and stands ready to act when needed.

"With regard to money market conditions and their potential impact on our monetary policy stance, we are monitoring developments closely and are ready to consider all available instruments," he said.

"Overall, we remain determined to maintain the high degree of monetary accommodation and to take further decisive action if required."

Further, Draghi said there was no point in speculating which instrument the bank will use when, as it all depends on the circumstances that warrant action.

The risks to the economic outlook remains on the downside, Draghi maintained. The central bank expects underlying price pressures to remain subdued and sees the risks to inflation outlook as broadly balanced over the medium term.

Further reduction in the fragmentation of euro area credit markets and stronger resilience of banks are essential to ensure an adequate transmission of monetary policy to the financing conditions in euro area countries, Draghi said.

"A timely implementation of further steps to establish a banking union will help to restore confidence in the financial system," he added.

He urged euro area governments not to unravel past efforts but to sustain fiscal consolidation over the medium term.

For comments and feedback contact: editorial@rttnews.com

Economic News

What parts of the world are seeing the best (and worst) economic performances lately? Click here to check out our Econ Scorecard and find out! See up-to-the-moment rankings for the best and worst performers in GDP, unemployment rate, inflation and much more.

Follow RTT