ECB will do what is needed to keep inflation target on track: Draghi

The European Central Bank (ECB) is ready to do what it takes to keep its medium-term inflation target on course, its head Mario Draghi said in a newspaper interview published on Saturday.

Consumer prices in the 19-country euro zone slipped by 0.1 percent in September – far from the bank’s aim of just below 2 percent – prompting calls for the ECB to expand or extend its 60 billion euros a month of asset purchases.

“If we are convinced that our medium-term inflation target is at risk, we will take the necessary actions,” Draghi told the Italian daily Il Sole 24 Ore.

“We will see whether a further stimulus is necessary. This is an open question,” he said, adding it would take longer than was foreseen in March to return to price stability.

Draghi said inflation in the euro zone was expected to remain close to zero, if not negative, at least until the beginning of next year.

“From mid-2016 to the end of 2017, also due to the delayed effect of the depreciation in the exchange rate, we expect inflation to increase gradually,” he said.

Asked about what other monetary tools the ECB could use, Draghi said the bank already had an extensive set of monetary policy instruments at its disposal.

“However, it is too early to say in any case that ‘this is the menu’ and that ‘there is nothing to add'”, he said.

In reply to a question on whether a cut in the deposit rate was a tool that would be used at the same time as amendments to quantitative easing policies, Draghi said it was too early to make that judgment.

“The interest rate on deposits could be one of the instruments that we use again,” he said.

The ECB launched in March a government bond buying program to flood the euro zone economy with cash and accelerate price growth that was stifled by a weak economy and very cheap energy prices.

The ECB is studying new stimulus measures that could be unveiled as soon as December and was prepared to cut its deposit rate deeper into negative territory if needed to fight falling prices, Draghi said earlier this month.

SLOWDOWN

The ECB president said risks were on the downside for both inflation and growth in the light of weaker emerging economies and the potential slowdown in the United States.

“Global growth forecasts have been revised downwards. This slowdown is probably not temporary,” he said.

But the ECB president was upbeat on the future of the euro zone and the risk of a break up. “The risks of fragmentation and redenomination have diminished considerably, if not disappeared,” he said.

Asked about Greek debt, Draghi said it was sustainable if Athens met the obligations it had signed up to, adding for the debt to be sustainable a certain degree of relief was also required.

“The latter should be such as to remove any doubt as to the future sustainability of the debt itself, once the first condition has been met,” he said.

Source: Reuters