Draghi Says Rate Cut and QE Are ECB Options to Fight Deflation

Mario Draghi has reinforced expectations that the European Central Bank will cut interest rates or launch a bond-buying programme next month after admitting that “pre-emptive action” may be needed to head off deflation.

The ECB is on guard against deflation and ready to act with conventional and targeted measures, while a broad asset-buying plan remains an option, the bank’s governor said in a speech on Sunday. To guard against a drop in price expectations, “more pre-emptive action may be warranted”, he said.

Draghi’s comments follow suggestions from other ECB policymakers that the bank is ready to act at its policy meeting on 5 June to counter low inflation and weak lending in the 18-country eurozone. Draghi said he expected inflation, which is running at 0.7%, to return slowly to the ECB’s target of just under 2%.

“Our responsibility is nonetheless to be alert to the risks to this scenario that might emerge and prepared for action if they do,” he said at the ECB’s Forum on Central Banking in Portugal. “What we need to be particularly watchful for at the moment is, in my view, the potential for a negative spiral to take hold between low inflation, falling inflation expectations and credit, in particular in stressed countries.”

via The Guardian

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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