Chief Mario Draghi:

ECB will 'do what we must' to lift inflation

GMT 15:31 2015 Friday ,20 November

Arab Today, arab today ECB will 'do what we must' to lift inflation

Frankfurt European Banking Congress
Frankfurt - Arab Today

ECB chief Mario Draghi said Friday the bank will "do what we must" to lift inflation as quickly as possible, in a new sign it could boost its anti-deflation defences.

In a speech at the Frankfurt European Banking Congress, Draghi warned that inflation was stubbornly way below the target of close to 2 percent even though the bank has deployed a 1.1 trillion euros ($1.2 trillion) scheme to help lift consumer prices.

The quantitative easing programme to buy sovereign bonds at a rate of 60 billion euros a month runs until at least September 2016, but inflation came in at zero in October.

"If we decide that the current trajectory of our policy is not sufficient to achieve that objective, we will do what we must to raise inflation as quickly as possible. That is what our price stability mandate requires of us," the European Central Bank chief said.

At 1335 GMT, the euro eased to $1.0686 from $1.0735 on Thursday.

Analysts at Citi noted the "very dovish remarks from the ECB president, who is clearly arguing in favour of additional policy accommodation at the December meeting".

Expectations have risen since the ECB governors' last meeting on October 22 that the bank would launch more stimulus to push up inflation.

Minutes of the meeting showed that some members were even starting to mull over the possible option of further cutting the ECB's key lending rate, which is already at a record low of 0.05 percent, the minutes published Thursday showed.

Nevertheless, some were against taking further measures, arguing that it meant venturing "further into uncharted territory and have repercussions on the functioning of markets and the behaviour of banks and customers".

At the Frankfurt congress, Bundesbank president Jens Weidmann also cautioned against hastily boosting stimulus measures, saying "we should not forget that the monetary policy measures already taken still need time to fully feed into the economy".

"We need to be aware that the longer we stay in ultra-loose monetary policy mode, the less effective this policy will become and the more the attendant risks and side-effects will come into play," he said.

Weidmann also warned of the risk that governments could get used to the low interest rates and be lulled into not undertaking real reforms.

Central bankers of the 19-member eurozone are keen to fight falling prices because they can be poisonous for the economy, creating a vicious circle of falling demand and fewer jobs.

While falling prices might appear to be good for consumers, deflation can become entrenched if consumers delay purchases in the hope of lower prices later, which in turn prompts companies to hold off investment.

The ECB's governing council will hold their next monetary policy meeting in early December.
Source: AFP

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