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Financial News: ECB's Draghi Says External Demand Weakness Does Not

ECB's Draghi Says External Demand Weakness Does Not Mean 'Serious Slump' Ahead

03/27/2019 - 04:47:00 (RTTNews)

(RTTNews) - European Central Bank President Mario Draghi said on Wednesday that the bank's monetary policy stance remained accommodative in the face of weaker growth outlook for the euro area and that the weakness in external demand is unlikely to be severe.

Speaking at the ECB Watchers conference in Frankfurt, Draghi said, "We are now seeing a more persistent deterioration of external demand."

"But a "soft patch" does not necessarily foreshadow a serious slump," he added.

The ECB Chief also noted that there are some signs that external demand may be affecting investment via manufacturing value chains within the euro area.

However, expectations for investment are relatively robust at present as the fundamentals are in place for investment to rebound, if global growth stabilizes.

"All in all, the current data suggest that external demand has not yet spilled over significantly into domestic demand, but the risks have risen in the last months and uncertainty remains high," Draghi said.

"This is why our medium-term outlook remains that growth will gradually return to potential, but the risks remain tilted to the downside."

Citing the resilience of the euro area labor market and the consequent strength in wage growth, Draghi said the bank is "confident that the sustained convergence of inflation to our aim has been delayed rather than derailed - meaning that we expect inflation to reach our objective at a later date than we previously foresaw."

The latest stimulus measure from the ECB is a new series of cheaper long-term loans to Eurozone banks.

The measure called the targeted longer-term refinancing operations, or TLTRO-III, aims to preserve favorable bank lending conditions and maintain the efficient bank-based transmission of the ECB policy.

Considering the weaker outlook for inflation, the ECB Governing Council also decided to extend the date-based leg of it forward guidance on interest rates "at least through the end of 2019".

"These decisions ensure that our policy stance remains accommodative in the face of a weaker growth outlook," Draghi said.

The bank will continue to respond to further delays in inflation convergence by adjusting its rate forward guidance to reflect the new inflation outlook, he added.

"The commitment to our objective also implies alertness to future risks and a readiness to respond to them should the medium-term outlook continue to deteriorate significantly," Draghi noted.

"We are not short of instruments to deliver on our mandate," he said.

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