European Central Bank President Mario Draghi reiterated the Bank’s forward guidance policy and said its newly-minted liquidity support programme will put downward pressure on money market rates.
Speaking to the Committee on Economic and Monetary Affairs at the European Parliament in Strasbourg, Draghi also said that the currency area’s modest recovery was expected to continue but vowed that the Bank’s policy of monetary accommodation would stay in place. He also dismissed speculation that he had any plans to step down as ECB President.
“We will maintain a high degree of monetary policy accommodation. In view of the outlook for inflation, we will keep the key ECB interest rates at current levels for an extended period of time,” Draghi said in his opening remarks. “Moreover, the ECB continues to stand ready to take action, if necessary, to further address risks of too prolonged a period of low inflation. This could also include the use of other unconventional instruments in line with our price stability mandate.”
Responding to a question that referenced press speculation that he was planning to leave the Eurotower, Draghi answered firmly: the “unfounded rumours from interested parties”, he said, are “unfounded”. “I will stay at the ECB.”
Draghi also outlined previously public details of the Bank’s programme of Targeted Longer-Term Refinancing Operations, or TLTROs. Explaining that weak bank lending had been a headwind to the Eurozone’s recovery and a drag on inflation over the recent past, Draghi said a healthy take-up of the multi-billion TLTRO programme would have multiple affects, including lowering refinancing costs that could be passed on to customers.
“This will ease credit conditions and stimulate credit creation,” he said. “Moreover, the growth of our balance sheet as a result of a significant take-up in our TLTROs will put downward pressure on interest rates in the money markets. This will contribute further to lowering the banking sector’s funding costs.”
In other remarks, Draghi repeated the central tenet of an argument he made last week during a speech in London in which he said there needed to me more co-operation and cohesion of economic policy at the EU level.
“In particular, I think there is a case for some form of common governance over structural reforms,” he said. “This is because the outcome of structural reforms – a continuously high level of productivity and competitiveness – is not merely in a country’s own interest. It is in the interest of the Union as a whole.”