The European Central Bank is ready to take action next month to boost the eurozone economy if price inflation forecasts warrant it, its president said yesterday, cautioning countries against pressuring the bank into action.
“The Governing Council is comfortable with acting next time but before we want to see the staff projections that will come out in early June,” Mario Draghi told a news conference after the ECB decided to keep its interest rates unchanged at 0.25 per cent.
He also flagged his concerns about the strength of the euro, which hit a two-and-a-half-year high against the dollar as he was speaking.
“We have a consensus about action, but after seeing the staff projections in early June,” he said. Draghi repeated the ECB’s commitment to keeping monetary policy loose for an extended period of time.
“We will maintain high degree of monetary accommodation and act swiftly if required with further monetary policy easing,” Draghi said saying that all options had been on the table at the meeting that decided to keep rates unchanged.
But Draghi also took a swipe at institutions and countries that have been calling for the ECB to take more action to boost the economy and counter deflationary pressures.
“We have received plenty of advice,” he said. “We are independent, so people should be aware that if this might be seen as a threat to our independence it could cause long-term damage to our credibility.”
French politicians, the International Monetary Fund and others have become increasingly vocal about calling for steps to curb the growing strength of the euro.
The euro, trading at 1.38 to the dollar, has gained more than 14 per cent over the US dollar since a July 2012 low. Draghi also said that the bank was on alert to the perils of euro strength.
“Strengthening of the exchange rate in the context of low inflation is cause for serious concern in view of the governing council.
“The governing council is unanimous in its commitment to using also unconventional instruments within its mandate,” he said.
The ECB Governing Council met in Brussels against the backdrop of a Franco-German spat over ECB policy towards the euro’s strength – one factor Draghi has identified as a potential trigger for policy action.
France wants to act now to prevent continued low price inflation, while industrially powerful Germany is apprehensive because it fears fresh bubbles – for example, in the cost of housing. Guntram Wolff, who heads Brussels think tank Bruegel, criticised the ECB for dithering and urged it to start buying bonds from the eurozone’s rescue fund, the European Stability Mechanism.
“Low inflation is very harmful,” he said.