Reform in euro area is far from complete and the European Central Bank (ECB) would keep monetary policy accommodative along the reform process, ECB President Mario Draghi said at New York Economic Club Thursday.
Draghi said the euro area as a whole is undergoing a process of fundamental reform and the objective is to lay the foundation for recovery and more jobs, foster financial stability and fiscal sustainability.
"Perhaps for the first time we are seeing signs of significant progress," said Draghi. Recent data releases support the outlook of a nascent economic recovery over the coming months, he said.
Following six quarters of negative output growth, euro area real GDP rose by 0.3 percent in the second quarter of this year. Although the ECB projections see euro area real GDP shrinking by 0. 4 percent this year, a positive growth rate of 1 percent is expected for 2014.
However, Draghi pointed out the pace of recovery is going to be subdued and uneven across countries. The unemployment rate, currently standing at 12.1 percent, remains unacceptably high, and the risks around the outlook continue to be tilted to the downside.
Moreover, he noted, monetary and, in particular, credit dynamics remain weak. The annual growth rate of loans to the private sector has remained well in negative territory; and the pace of contraction has actually accelerated over recent period.
Given the current economic conditions, Draghi laid out a three- pronged strategy for euro area policymakers.
First, he suggested, monetary policy has to remain consistently supportive of the baseline outlook and mitigate the risks that surround it. The ECB's key interest rate currently stays at historical low level of 0.5 percent and Draghi pledged to keep it for an "extended period".
Second, he said countries in the area should continue the adjustment of their domestic policies in a way that removes structural impediments and fosters long-term fiscal sustainability; third and equally important, Europe has to continue the reform process in its banking sector to establish conditions that align incentives of individual financial institutions with those of society.