Eurozone interest rates are set to remain at a lower level for sometime and currently there was no need to extend the March 2017 deadline for asset purchases as the policy measures pursued thus far have been effective, European Central Bank President Mario Draghi said Thursday, even as the bank trimmed the growth and inflation forecasts for next year.
In the policy meeting in Frankfurt on Thursday, the Governing Council left all the three interest rates unchanged for a fourth consecutive session and decided to reaffirm that the monthly asset purchases of EUR 80 billion will run until the end of March 2017, or beyond, if necessary.
The main refi rate is at a record low zero percent, the deposit rate at -0.40 percent, and the marginal lending facility rate is at 0.25 percent. The three rates were previously lowered in March.
"We continue to expect them to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases," Draghi said in his introductory statement to the customary post-decision press conference.
Policymakers did not discuss any extension of asset purchases beyond March 2017, Draghi said in response to questions from reporters. That was in contrast to economists' expectations that the bank is set to expand the stimulus later this year.
"Overall, while the available evidence so far suggests resilience of the euro area economy to the continuing global economic and political uncertainty, our baseline scenario remains subject to downside risks," Draghi said.
The Governing Council is closely monitoring developments in economic and financial markets and inflation expectations, he said.
"If warranted, we will act by using all the instruments available within our mandate," Draghi added.
The ECB Chief also said that the bank has tasked the relevant committees to evaluate the options that ensure a smooth implementation of its purchase programme.
The latest set of ECB Staff macroeconomic projections for euro area unveiled by Draghi showed that the growth forecast for this year was raised to 1.7 percent from 1.6 percent.
However, the growth projection for next year was cut to 1.6 percent from 1.7 percent. The outlook for 2018 was lowered to 1.6 percent from 1.7 percent.
"Looking ahead, we continue to expect the economic recovery to proceed at a moderate but steady pace," Draghi said.
That said, he pointed out that the economic recovery in the euro area is expected to be dampened by still subdued foreign demand, partly related to the uncertainties following the UK referendum outcome, among others.
The bank retained the inflation forecast for this year at 0.2 percent, but cut the projection for next year to 1.2 percent from 1.3 percent. The outlook for 2018 was maintained at 1.6 percent.
Inflation will take a little longer than earlier forecast to reach the target of 'below, but close to 2 percent', but not much longer, Draghi said.
The revisions to the macroeconomic outlook was not substantial to warrant a decision to act, he noted. "Our monetary policy is effective," he said.
"There is no question about the will to act, the capacity to act, and the ability to do so."
The central bank chief reiterated the need for other policy areas to contribute "much more decisively" to support euro area recovery. Structural reforms are necessary in all Eurozone countries, he said.
"The implementation of structural reforms needs to be substantially stepped up to reduce structural unemployment and boost potential output growth in the euro area," Draghi said.
"Fiscal policies should also support the economic recovery, while remaining in compliance with the fiscal rules of the European Union."
There was no longer any fragmentation in the financial system and credit has been growing constantly since 2014 and reaching the non-financial sector of the economy, Draghi noted.
Monetary policy transmission has never worked better than it does today and there were no risks of hoarding cash, he added.
Acknowledging awareness of the adverse impact of negative interest rates on banks, Draghi stressed that low interest rates should not be blamed for every problem faced by banks.
"Interest rates have to be low today to be high tomorrow," he said.
"The ability to make loans not being affected by low interest rates."
by RTT Staff Writer
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