Draghi defiant after ECB keeps interest rates flat
Print Edition
EUROPE’S top central banker struck a defiant tone yesterday over German-led criticism that the European Central Bank has over-stepped the mark in its ultra-low interest rate policies.
After the bank’s decision to keep its interest rates unchanged at record lows, ECB President Mario Draghi said the bank can deploy more stimulus if global troubles threaten to push a modest economic recovery off the rails and further weighs on inflation.
Overall though, he sounded a relatively optimistic — and firm — tone.
“We obey the law not the politicians,” he said.
Draghi and the ECB have come under German criticism over recent policy moves. Some conservative German politicians have grumbled about the low returns to savers and on pension savings. Finance Minister Wolfgang Schaeuble went so far as to credit half of the support for the anti-euro, anti-immigration Alternative for Germany party to public discontent over ECB policies.
Draghi defended the bank’s policies and noted the ECB is tasked with setting policy for all the countries in the eurozone, not just Germany. The same policies backed by the ECB have been enacted globally, he noted.
The European Union treaty that created the ECB and the euro forbids the central bank from taking advice from governments, and says that member governments agree to respect that. Political independence shields a central bank from pressure from politicians who may want more expansive monetary policy that could help them get re-elected — but which could cause long-term harm.
The bank did not change the measures that have caused controversy. The bank’s 25-member governing council kept its key benchmark interest rate at zero. The refinancing rate determines the cost of central bank credit to commercial banks, and through that steers many other short-term lending rates.
It also didn’t touch its rate of minus 0.4 percent on funds left on deposit at the central bank by commercial banks. That highly unusual negative rate is aimed at getting banks to lend the money, not stash it, and help stoke inflationary pressures within the eurozone.
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