ECB To Act If Inflation Continues To Fall

The European Central Bank is ready to deploy anything in its monetary policy toolbox if inflation stays too low for too long despite keeping interest rates steady on Thursday, its president said.

The ECB held its main interest rate at a record low of 0.25 percent and the rate for bank deposits at central banks at zero,

hoping the euro zone recovery will gain strength unaided.

ECB chief Mario Draghi told a news conference that he and his colleagues expected a prolonged period of low inflation and that if it dragged on too long, action would be taken.

That marked a significant shift of tone from last month when he appeared to set quite a high bar to action.

“We will monitor developments very closely and we will consider all instruments available to us,” Draghi said. “We are resolute in our determination to maintain a high degree of monetary accommodation and act swiftly if required.”

He emphasized that any policy shift could be over and above interest rate moves, saying: “The Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate in order to cope effectively with risks of a too prolonged period of low inflation.”

He added that printing money – quantitative easing – had been discussed at Thursday’s policy meeting.

Having barely reacted to the earlier policy decision, Draghi’s comments saw the euro drop to a session low against the dollar.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza