Home' Trinidad and Tobago Guardian : January 24th 2015 Contents SBG16 FINANCE
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt JANUARY 24 • 2016
European Central Bank head Mario Draghi says
the eurozone s monetary authority has "plenty of
instruments" available to boost inflation that s too
He added that the bank s governing council has
"the determination and the willingness and the capac-
ity... to act and deploy these instruments."
Draghi made the comments Friday during a question
and answer session at the World Economic Forum
in Davos, Switzerland.
A day earlier, the bank left its key interest rates
and bond-purchase stimulus unchanged --- but indi-
cated that it would look at more stimulus at its next
meeting March 10.
Annual inflation of only 0.2 per cent in the 19
countries that use the euro currency is far below the
bank s goal of just under 2.0 per cent considered best
for sustainable growth and jobs.
Draghi didn t say what instruments might be used.
At its December 3 meeting, the bank extended its
60 billion euros in monthly purchases of bonds by
six months to March 2017.
The purchases stimulate the economy, in theory,
by pushing newly printed money into the financial
system in hopes banks will lend it. It also cut the
interest rate on deposits from commercial banks to
minus 0.30 per cent from minus 0.20, a move that
penalised banks for hoarding money in hopes they
will lend it instead.
The central bank is also offering unlimited, cheap
credit to banks.
Europe s economy is growing modestly and unem-
ployment is high at 10.5 per cent but falling. Steep
falls in the price of oil, however, have undermined
ECB efforts to push up inflation. AP
The European Central Bank
sought Thursday to assuage
market disappointment over
its recent anti-deflation
policies by promising to
revisit the level of euro area
interest rates and other stimulus measures
At its first policy meeting of 2016, the
ECB held its key interest rates unchanged,
as had been widely expected.
But European Central Bank head Mario
Draghi said the central bank could review
its monetary policy stance at its next meeting
in March, immediately sparking a rally in
stock markets and bringing down the euro.
"The decisions taken in early December
... were fully appropriate," Draghi insisted,
rejecting suggestions that they had been
"Yet, as we start the new year, downside
risks have increased again amid heightened
uncertainty about emerging market
economies growth prospects, volatility in
financial and commodity markets, and
geopolitical risks," Draghi said.
"In this environment ... it will therefore
be necessary to review and possibly recon-
sider our monetary policy stance at our next
meeting in early March, when the new staff
macroeconomic projections become avail-
Determined to act
The ECB was "determined" to do every-
thing in its power to steer eurozone inflation
back up towards levels conducive to healthy
economic growth, and there were "no limits"
as to how far it is prepared to go in that
respect, Draghi said.
"We have the power, willingness and
determination to act."
A long series of policy moves by the ECB
over the past 18 months---ranging from inter-
est rate cuts, the provision of unprecedented
amounts of cheap liquidity and a contro-
versial programme of bond purchases---has
failed to steer stubbornly low inflation back
up to the target level of close to but just
under 2.0 per cent.
Area-wide inflation stood at a meagre
0.2 per cent in December.
But "we are not surrendering," Draghi
At its last meeting in December, the ECB
cut its key "deposit" rate by 0.10 percentage
point to minus 0.30 per cent and extended
the length of its asset purchase programme
known as quantitative easing or QE by six
months to March 2017.
At the time, those decisions disappointed
financial market players, as they had expect-
ed much more decisive action.
Some ECB watchers argued that the ten-
tativeness of the moves was an indication
of divisions within the central bank s 25-
member governing council regarding the
need for more action, an interpretation
apparently backed up by the minutes of the
meeting, released earlier this month.
According to the minutes, "some" mem-
bers had argued "that the existing policy
measures ... should be given time for them
to unfold their full effect ... before adopting
further monetary policy measures."
But Draghi denied there was disagreement
within the ECB on the matter.
"There are no such divisions," Draghi said.
Analysts were cheered by the ECB chief s
New Year message.
"What was expected to be a dull first
meeting of the year turned out to be an
exciting (one)," said ING DiBa economist
"Draghi sounded much more concerned
about the outlook for the eurozone econ-
omy," the expert said.
"He explicitly mentioned the renewed
sharp drop in oil prices, the appreciation of
the euro and the slowdown of emerging
markets and China."
He also mentioned the volatility in finan-
cial and commodity markets as one of the
factors behind the increase in downside
risks, Brzeski noted.
"The question, however, is whether and
what the ECB can really deliver in March."
RBS economist Andrew Cates said he had
previously been pencilling in further easing
"But in light of today s dovish rhetoric,
we have pulled forward the timing of that
forecast for further easing to March."
Cates predicted that the ECB could pare
back its deposit rate still further by 0.10-
0.15 percentage point and boost the size of
its QE purchase programme.
Commerzbank economist Michael Schu-
bert said Draghi s comments were "in line
with our prediction of further measures,
although we still think another rate cut more
likely than an increase in the monthly volume
of asset purchases."
Draghi: Bank has
'plenty of instruments'
to boost inflation
ECB revs up
markets with talk
of fresh stimulus
A long series of policy moves by the
ECB over the past 18 months---ranging
from interest rate cuts, the provision
of unprecedented amounts of cheap
liquidity and a controversial
programme of bond purchases---has
failed to steer stubbornly low inflation
back up to the target level.
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