News Column

ECB's Draghi Signals Low Rates For Extended Period

July 3, 2014

VIENNA (Alliance News) - European Central Bank President Mario Draghi said on Thursday that euro area interest rates are set to remain low amid low inflation and as the liquidity measures announced last month are expected to boost lending to the real economy.

"The key ECB interest rates will remain at present levels for an extended period of time in view of the current outlook for inflation," Draghi said in Frankfurt, in the introductory remarks of his customary post-decision press conference.

"Moreover, the Governing Council is unanimous in its commitment to also using unconventional instruments within its mandate, should it become necessary to further address risks of too prolonged a period of low inflation."

Earlier today, the ECB held the refinancing rate at a record low 0.15%, the deposit rate at -0.10% and the marginal lending rate at 0.40%.

In June, the bank slashed the deposit rate from zero to negative, which in effect would charge Eurozone banks for parking excess funds at the ECB, a first for a leading central bank. The refi rate and the lending rate were also reduced last month.

"We are strongly determined to safeguard the firm anchoring of inflation expectations over the medium to long term," Draghi said.

Eurozone inflation held steady at 0.5% in June, remaining below the ECB's aim of keeping the figure 'below, but close to 2%' for the seventeenth consecutive month.

In June, the ECB staff forecast inflation for this year at 0.7% and 1.1% for next year.

The central bank also announced the details of the targeted longer-term refinancing operations, or TLTROs, announced in June. The EUR 400 billion TLTRO scheme will mature in September 2018.

Under the plan, financial institutions can borrow money from the ECB, totaling 7% of their total loans to households and the non-financial private sector.

Banks that borrow in the TLTROs and fail to achieve their benchmarks as of April 30, 2016 will be asked to pay back their borrowings in full in September 2016, the ECB said in a separate communique.

The earlier cheap long term loan offerings from the ECB saw banks taking the money and failing to lend it to the real economy. The pay-back clause in the latest plan shows the central bank is keen to see that its efforts actually boost lending.

Draghi also reiterated the bank's interest in starting the Asset Backed Securities purchase programme.

"Draghi's remarks on the ABS programme, however, still leave some uncertainty on whether it will ever happen," ING Bank economist Carsten Brzeski said.

"Normally, as soon as Draghi starts talking about coordinating ABS preparatory work with other international bodies, this is a clear sign that it won't happen soon."

The ECB sees the risks to the Eurozone economic outlook on the downside, while the risks to the inflation outlook were broadly-balanced, Draghi said.

"We will closely monitor the possible repercussions of geopolitical risks and exchange rate developments," he added.

Further, Draghi announced that the Governing Council will hold its monetary policy meetings every six weeks from January 2015. Currently, the rate-setting holds the policy session every first Thursday of a month.

The reserve maintenance periods will be extended to six weeks to match the new schedule, Draghi said. Banks are required on average to hold minimum reserves with the Eurosystem during the maintenance period, which is four week as of now.

The bank also plans to start publishing regular account of its monetary policy meetings from January 2015 session. The publication of the accounts will be timed so that the account of the previous meeting is published before the date of the next one, the bank said.

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: Alliance News

Story Tools Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters