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Financial News: Draghi Says Eurozone Recovery Solid And Broad, Inflation

Draghi Says Eurozone Recovery Solid And Broad, Inflation Unconvincing

04/27/2017 - 10:43:00 (RTTNews)

(RTTNews) - European Central Bank policymakers are confident that the euro area economic recovery is improving, while they assessed that inflationary pressures remain subdued, ECB President Mario Draghi said Thursday, damping speculation that the bank may start to wind down its massive stimulus later this year.

"Incoming data since our meeting in early March confirm that the cyclical recovery of the euro area economy is becoming increasingly solid and that downside risks have further diminished," Draghi said in his introductory statement at the post-decision press conference in Frankfurt.

"At the same time, underlying inflation pressures continue to remain subdued and have yet to show a convincing upward trend."

He also stressed on the need to look through transient developments in headline inflation that the bank claims is currently volatile and energy price-driven.

Earlier on Thursday, the bank left all three of its interest rates unchanged and retained its monthly asset purchases at EUR 60 billion until the end of this year, or beyond, if necessary.

"A very substantial degree of monetary accommodation is still needed for underlying inflation pressures to build up and support headline inflation in the medium term," Draghi said.

"If the outlook becomes less favorable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, we stand ready to increase our asset purchase programme in terms of size and/or duration."

The bank expects the economic recovery to continue to firm and broaden, yet the risks to the outlook, though moving towards balance, are largely tilted to the downside and linked to mostly global factors, Draghi said.

Responding to questions from reporters, Draghi said the Governing Council discussed the balance of risks to the growth outlook and not those on inflation.

"The recovery was fragile and uneven and is now solid and broad," Draghi said.

While some policymakers had a sanguine view on the situation, there was overall agreement on the language on the growth outlook, he noted. There were no real differences among members' regarding the inflation outlook, he added.

Headline inflation is expected to increase in April and thereafter to hover around current levels until the end of this year, Draghi said.

Underlying inflation is expected to remain low and rise only gradually over the medium term as unutilized resources are still weighing on domestic wage and price formation, he said.

Policymakers were not sufficiently confident that inflation would converge on target, Draghi said.

Regarding an exit from stimulus or tapering, Draghi said policymakers did not discuss such a scenario and there was no need for now to worry about sequencing of policy measures.

Economists now expect Draghi to drop any hint of tapering in future in the June policy meeting, when the fresh batch of ECB Staff macroeconomic projections would be presented.

Draghi also pointed out that the recovery in loan growth to the private sector observed since the beginning of 2014 is proceeding.

Quizzed about how European elections impact ECB stance, Draghi said the bank conducts monetary policy not based on possible outcomes of elections. He also said that the risk of protectionism has largely receded.

The ECB Chief reiterated his call for decisive contribution from other policy areas to support monetary policy in preserving the economic recovery and to bring inflation to target on a sustainable basis.

Draghi sought faster implementation of structural reforms and intensified efforts by countries to achieve a more growth-friendly composition of public finances.

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