ECB ready to act 'without undue delay'

FRANKFURT: European Central Bank President Mario Draghi said Friday that the ECB is ready to roll out new policy measures to ward off deflation in the euro area "without any undue delay.""We will use all means available to us, within our mandate, to return inflation towards our objective – and without any undue delay," Draghi told a banking congress in Frankfurt.

"We would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases."

In a bid to ward off deflation – a dangerous downward spiral of falling prices – in the euro area, the ECB has not only cut its interest rates to new all-time lows, but also embarked on a series of asset purchase programmes to pump liquidity into the financial system.

On top of this, the ECB has said it is actively preparing additional moves should the situation need it.

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Among the additional measures being considered is so-called quantitative easing or QE, the large-scale purchase of government bonds, a policy hitherto used by other central banks around the world but viewed sceptically in Europe.

The critics, including the German central bank or Bundesbank, believe such measures would overstep the ECB's mandate by effectively printing money to finance a country's debt.

Until now, the ECB has focused on buying packages of loans known as asset-backed securities (ABS) and so-called covered bonds to pump cash into the economy.

It has also launched a series of targeted longer-term refinancing operations or TLTROs – cheap funding made available to banks on condition they lend it on to businesses.

"With our monetary policy decisions in June and in particular in September, we have transitioned from a monetary policy framework based predominantly on passive provision of liquidity to a more active and controlled management of our balance sheet," Draghi explained.

"This means that it is now changes in the size and composition of our balance sheet that determine our monetary policy stance – or to be more specific, the markets in which we intervene, and the magnitude and pace of our purchases. We expect such interventions to affect output and inflation," Draghi said.

Eurozone inflation currently stands at just 0.4 per cent, way below the ECB's target of around 2.0 per cent.

"We cannot be complacent – we have to be very watchful that low inflation does not start percolating through the economy in ways that further worsen the economic situation and inflation outlook," Draghi said.

The ECB chief acknowledged that some of the factors behind the low level of inflation were due to volatile elements such as energy prices.

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"We are currently seeing some volatility in inflation expectations. Longer-term indicators are on the whole within a range that we consider consistent with price stability. Over shorter horizons, however, indicators have been declining to levels that I would deem excessively low," Draghi said.

"We will do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires of us," Draghi said. – AFP

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