Mario Draghi has said policymakers are still waiting for inflation to catch up with the economy’s recovery, as they put off any discussion on tapering stimulus until after the summer.
“We are finally experiencing a robust recovery where we only have to wait for wages and prices to follow course,” the European Central Bank (ECB) president told reporters at a news conference after a monetary policy meeting in Frankfurt. “We need to be persistent and patient and prudent, because we’re not there yet.”
Mr Draghi read out an assessment of the economic outlook that was very similar to the one he offered in June. The ECB left interest rates unchanged.
With less than half a year left of quantitative easing under the current programme, policymakers have been debating publicly as to when they might start winding-down asset purchases.
“While the ongoing economic expansion provides confidence that inflation will gradually glide toward levels in line with the inflation aim, it has yet to translate into stronger inflation dynamics,” Mr Draghi said.
“A very substantial degree of monetary accommodation is still needed for underlying inflation pressures to gradually build up.”
The ECB president’s comments follow what seemed to be a shift in stance three weeks ago during a speech in Sintra, when he said that renewed reflationary forces may provide room for “adjusting the parameters” of current stimulus, while keeping the level of accommodation broadly unchanged.
The euro surged as Mr Draghi said incoming data confirmed the strength of the eurozone’s economy, before falling back slightly.
Mr Draghi suggested his message in Sintra had been overinterpreted.
He said “much was made of the word ‘reflation,”‘ and he does not yet see a big difference in inflation trends. Euro-area inflation is expected to average just 1.6pc in 2019, according to the ECB’s forecasts published last month.
Economists predict the first official decision on the future of the policy path will be announced in September, when the Governing Council next meets and is die to publish projections.
In preparation for that, ECB staff are already studying various options for how bond-buying might eventually be wound down, according to euro-area officials familiar with the matter.
Mr Draghi said that officials will reassess their stimulus in the autumn. The current program of purchases is set to expire at the end of the year.
Policymakers had earlier kept their language on quantitative easing unchanged, retaining a pledge to increase spending if warranted. (Bloomberg)
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