Draghi Says ECB Policy Potent as Low-Rate Risks Monitored
Mario Draghi said the European Central Bank’s non-standard measures have proven effective, and low interest rates haven’t yet led to financial imbalances.
Unconventional actions “have proven so far to be potent, more so than many observers anticipated,” the ECB president said in a speech in Washington. “While a period of low interest rates will inevitably result in some local misallocation of resources, it does not follow that it has to threaten overall financial stability” and “there is little indication that generalized financial imbalances are emerging,” he said.
The ECB cut its benchmark interest rate to a record-low 0.05 percent in September and has relied on a range of non-standard stimulus to resuscitate the 19-nation economy. Policy makers have provided banks with loans designed to fuel credit supply and started buying government bonds in March, while urging governments to push ahead with structural reforms.
“Structural reforms that increase confidence in economic prospects and encourage entrepreneurs to capitalize on today’s extremely accommodative financing conditions will make our policy commensurately more powerful,” Draghi said in his speech on Thursday.
He said that such reforms are essential to ensure the ECB’s policies have their desired impact.
In Full
“It is ultimately only a combination of policies, that are complementary and mutually consistent, that will allow our policy to reap its full effects –- and to bring about a lasting return of both prosperity and stability for the whole euro area,” he said.
Draghi reiterated that the ECB is committed to implementing its 1.1 trillion-euro ($1.2 trillion) asset-purchase plan “in full,” and “in any case” until inflation has recovered lastingly.
“While we have already seen a substantial effect of our measures on asset prices and economic confidence, what ultimately matters is that we see an equivalent effect on investment, consumption and inflation,” he said.
Euro-area central banks have amassed public-sector assets worth 109 billion euros since the program started in March. It is set to run through September next year.
“After almost seven years of a debilitating sequence of crises, firms and households are very hesitant to take on economic risk,” Draghi said. “For this reason quite some time is needed before we can declare success, and our monetary policy stimulus will stay in place as long as needed for its objective to be fully achieved on a truly sustained basis.”
Source: Bloomberg – Draghi Says ECB Policy Potent as Low-Rate Risks Monitored
