European Central Bank President Mario Draghi warned of “upside risks” to inflation in a press conference today in Frankfurt, dimming expectations for a rate cut or further liquidity measures as eurozone growth continues to contract.
Draghi told reporters that it foresees inflation above its target of just below two per cent in the medium-term.
While the bank did not go so far as to raise interest rates this morning, its concerns about upward risks to price stability signal that the ECB will hold off on the liquidity actions that have generated positive enthusiasm in the euro area for the last few months.
Draghi also argued that banks should retain their earnings in order to meet new capitalisation requirements to be imposed in the next few months. Doing so would limit lending to the general eurozone economy, exacerbating economic contractions in the periphery and even core Europe.
On the other hand, Draghi told reporters that it will not focus on an exit strategy from current liquidity measures right now.