VIENNA ( Dow Jones) – the president of the European Central Bank, Mario Draghi, said on Thursday that monetary policy makers are willing to take further action if inflation accelerates not decisively, but stressed the need for patience and wait for the already announced stimulus measures take effect.
Despite the recent rise in oil prices, economists ECB just raised its inflation forecast for this year and kept unchanged the 2017 and 2018, indicating that further stimulus measures might be necessary to achieve the target inflation just below 2%.
“It is quite clear that not hesitate to act,” Draghi said at a news conference after the ECB’s decision to keep monetary policy unchanged.
The reference rate of the central bank, imposed on ordinary loans, remains at the record level of 0%, while interest on deposits is still -0.4%, which It implies that commercial banks will continue to pay to store funds at the central bank for one day. In addition, the bank also said it will begin to make purchases of corporate debt on June 8 and will hold its first operation of the new series of long-term financing with specific target –or TLTRO, for its acronym in inglés– on June 22.
Draghi said the economic recovery in the euro zone could continue in the coming quarters, albeit at a slower pace than in the first three months of the year, despite lower demand for eurozone exports by the large emerging economies.
However, he noted that there are few signs still reflect an increase in inflationary pressures as the recovery progresses.
“We do not see substantial pressures on wages and pricing mechanisms, with the possible exception of Germany,” he said.
The ECB economists revised up its 2016 inflation forecast to 0.2% from 0.1% in March. However, they maintained their estimates for next year and 2018 at 1.3% and 1.6%, respectively, still well below the target.
This suggests that the ECB might have to announce new stimulus measures if he wants to raise the inflation rate, but the questions of journalists, Draghi refused to commit to future actions.
“Right now, we have to focus on implementation, the effects of the measures we have taken,” he said.
The ECB seeks that inflation is just below 2% over the medium term, but in the eurozone takes three years well below the target and in May stood at -0.1%, which which he led the bank to inject billions of euros into the economy to end deflation risks.
The central banks usually try to avoid continuous decline in prices, or deflation, as this may lead consumers to postpone their purchasing decisions, lowering economic output and living standards.
ECB economists also raised its growth forecast for the eurozone economy in 2016 to 1.6% from 1.4%, while still expecting an expansion of 1.7% in 2017 . the Organization for Economic Cooperation and Development on Tuesday revised up its growth forecasts for the euro zone to 1.6% from 1.3% estimated when it published its forecast in February, citing a stronger first quarter the expected. The eurozone economy expanded by 1.6% in 2015 and 2.1% annualized in the first three months of this year, outperforming both the US and the UK.
Draghi said that risks to these forecasts is the British referendum on June 23 in which it will be decided whether the UK remains in the EU. ECB president urged voters to continue within the block.
“UK and the eurozone are mutually beneficial,” he said. “Britain should continue in the European Union because the EU would benefit from their stay and we believe that UK would also benefit.”
– Riva Gold in London contributed to this article.
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