ECB sticks to stimulus exit despite uncertainty
Print Edition
The European Central Bank kept policy unchanged as expected yesterday, staying on course to claw back unprecedented stimulus even as the growth outlook continues to darken and political turmoil in Italy looms large over the currency bloc.
Having exhausted much of its firepower with years of support, the ECB reaffirmed that its 2.6 trillion euro (US$2.97 trillion) asset purchase scheme will end this year and interest rates could rise after next summer, sticking to a guidance first unveiled in June and repeated at every meeting since.
Acknowledging a weaker recent momentum in the euro zone economy, ECB chief Mario Draghi reeled off what he called a “bunch of uncertainties” related to trade protectionism, emerging markets and financial market volatility.
“Is this enough of a change to make us change the baseline scenario? The answer is ‘No,’” he told an ECB news conference to justify its policy-makers’ decision to maintain their judgment that risks remained “broadly balanced.”
“The underlying strength of the economy continues to support our confidence that the sustained convergence of inflation to our aim will proceed and will be maintained even after a gradual winding down of our net asset purchases.”
Yet despite the hawkish message — which included an upbeat assessment of firmer wage pressures — the euro fell on his comment that Europe’s monetary union remained “fragile” as long as measures to shore up existing structures were not complete.
Earlier, the Governing Council statement reaffirmed its view that interest rates would remain at present levels at least “through the summer of 2019.” Draghi completed the picture by adding there had been no discussion of extending stimulus.
With the EU having taken the unprecedented step of rejecting Italy’s budget this week, Draghi was quizzed at length about the escalating political fight between Rome and Brussels.
Himself an Italian, Draghi said he was confident compromise would be reached between Brussels and Rome and noted how much the stand-off was already costing Italy because of the rising yield on its government debt.
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