ECB to stick to policy plan despite calls for tightening: Draghi, Praet

The European Central Bank will stick to its policy plan including bond buying and record-low rates for some time to come as it is not yet convinced the euro zone economy is back to rude health, its president and chief economist said on Thursday.

Mario Draghi and Peter Praet’s remarks suggest the ECB won’t change its policy message this month despite mounting calls from Germany for it to wind down its stimulus. They confirm an exclusive Reuters report from last week.

Draghi said he saw no need to deviate from the ECB’s stated policy path, which includes bond buying at least until the end of the year and record-low rates until well after that to stimulate inflation.

“I do not see cause to deviate from the indications we have been consistently providing,” Mario Draghi said at a conference in Frankfurt.

“Before making any alterations to the components of our stance – interest rates, asset purchases and forward guidance – we still need to build sufficient confidence that inflation will indeed converge to our aim,” he added.

Inflation in the euro zone has rebounded in recent months and was at 1.5 percent in March. The ECB aims for price growth of almost 2 percent.

This has fueled market speculation the ECB might raise its deposit rate, which is currently -0.4 percent, meaning banks are charged on their excess deposits, a contentious issue in cash-rich countries such as Germany, France and the Netherlands.

Germany’s central bank governor Jens Weidmann said in an interview published on Wednesday the time for taking the foot off the stimulus pedal was approaching. The president of the country’s banking association called on the ECB to end its expansionary monetary policy soon.

Yet ECB chief economist Peter Praet backed the sequence of the bank’s policy path, saying even introducing the notion of a rate hike would undo some of the economic stimulus brought by the ECB’s asset purchases.

“If investors start perceiving that the path of the policy rate is subject to upward uncertainty … long-term interest rates will be pushed higher and asset purchases will become less effective, Praet said.

The ECB is on course to buy 2.3 trillion euros worth of assets, mainly government bonds, in a bid to boost lending by flooding the euro zone with cash.

While bank lending to households and companies has recovered, it is still growing at a slower pace than before the financial crisis.

 

Source – Investing.com