European Central Bank President Mario Draghi asserted that the option of scaling back bond purchases gradually to zero, or 'tapering', was not discussed by policymakers on Thursday, but said the bank was ready to extend and boost stimulus when needed.
Earlier on Thursday, the central bank left all its three interest rates unchanged for a sixth consecutive session, the final one this year, and retained its asset purchases of EUR 80 billion a month till March next year, but decided to reduce the size beyond that point to EUR 60 billion a month till December 2017.
The Governing Council, led by Darghi, kept the refi rate unchanged at a record low zero percent in the policy session held in Frankfurt. The deposit rate was held steady at -0.40 percent, and the marginal lending facility rate at 0.25 percent. The rate decision was in line with economists' expectation.
"If, in the meantime, the outlook becomes less favorable, or if financial conditions become inconsistent with further progress towards a sustained adjustment of the path of inflation, the Governing Council intends to increase the programme in terms of size and/or duration," the bank said in a statement.
Economists had widely expected the bank to extend the asset purchases by six months beyond March 2017, but retain the size of the programme unchanged. They had also said that the bank was unlikely to even mention any scale back of asset purchases, also known as 'tapering', given the heightened political uncertainty.
Markets regarded the reduction of the size of the monthly asset purchases beyond March to be 'tapering'.
Responding to reporters' questions at his post-decision press conference, Draghi said, "There is no question about tapering. Tapering has not been discussed today."
The latest extension of the asset purchase programme has been "calibrated to preserve the very substantial degree of monetary accommodation necessary to secure a sustained convergence of inflation rates towards levels below, but close to, 2 percent over the medium term", Draghi said.
The extension of asset purchases over "a longer horizon allows for a more sustained market presence and, therefore, a more lasting transmission" of stimulus measures, he added.
The adjustments to the parameters of the APP included broadening the maturity range of the public sector purchase programme by decreasing the minimum remaining maturity for eligible securities from two years to one year.
The bank also allowed purchases of securities under the APP with a yield to maturity below the interest rate on the ECB's deposit facility. Draghi said purchases below the deposit rate was an option and not a necessity.
Interest rates are expected to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases, the bank said.
Draghi also unveiled the latest ECB Staff macroeconomic projections for euro area. Eurozone growth was expected to be 1.7 percent this year, same as in the September projection.
Growth forecast for next year was raised to 1.7 percent from 1.6 percent, while the outlook for 2018 was retained at 1.6 percent. For 2019 also, growth was predicted at 1.6 percent.
Eurozone economic expansion is expected to proceed at a moderate but firming pace, Draghi said, adding that risks surrounding the euro area growth outlook remain tilted to the downside.
Inflation forecast for this year was retained at 0.2 percent, but the projection for next year was raised to 1.3 percent from 1.2 percent. The outlook for 2018 was trimmed to 1.5 percent from 1.6. Price growth was forecast to be 1.7 percent in 2019.
There are no signs yet of a convincing upward trend in underlying inflation, Draghi said. The risk of deflation has largely disappeared but uncertainty prevails everywhere, he said.
Draghi also reiterated that the implementation of structural reforms in particular needs to be substantially stepped up to reduce structural unemployment and boost potential output growth in the euro area. He stressed that structural reforms were necessary in all euro area countries.
by RTT Staff Writer
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