Mario Draghi said there are “no limits” to what the ECB will do reach its inflation target of 2%.
Speaking at a press conference following the ECB’s decision to leave its base deposit rate at 0.3%, Draghi was dovish in his comments, saying that he and the ECB expect to keep interest rates at current, or lower levels “for an extended period of time.”
The ECB’s rate decision was in-line with economists’ forecasts but there was plenty for Draghi to talk about, with oil prices in the toilet and stock markets around the world suffering a shocking start to the year.
Draghi was questioned by journalists about the challenges facing the ECB in the current low inflationary environment, but left people in no doubt about his intentions saying that the ECB has the “power, willingness and determination” to ensure inflation starts to approach its 2% target.
He also told reporters that the ECB would not “surrender” in the face of questions about central banks’ continued ability to control inflation, adding that he thinks inflation will start to rise by the end of the year, but will stay low for at least the first few months of 2016
Commenting on the problems facing the global economy, Draghi said: “As we start the new year, downside risks have increased again” citing both problems in emerging markets, and the continued slump in commodity prices.
Another rate cut?
“Super Mario” as he is known, also subtly pointed to another possible cut in the base deposit rate at the ECB’s next meeting, saying: “It will be necessary to review and possibly reconsider our monetary policy stance at our next meeting in early March.” He made the comment three times throughout the press conference.
Draghi’s initial comments sent the euro plummeting against the dollar. At one point fell as much a 1% to $1.078. It has since pared those losses, and around ten minutes after the end of the press conference was 0.58% in the red.
European stock markets reacted well to the ECB decision and Draghi’s comments, with most major indices passing 1.5% gains, before falling a little.
Super Mario speaks
Here are some highlights from Mario Draghi’s ECB press conference:
- Draghi began by wishing everyone a Happy New Year.
- The ECB expects the deposit rate to stay at present, or lower levels for “an extended period of time.”
- Draghi said that ECB monetary policy is working, and has strengthened the Eurozone economy against “present global shocks.”
- “As we start the new year, downside risks have increased again” — Draghi cited problems in emerging markets and slumping commodities.
- Inflation expected to stay low until the back end of 2016, Draghi said. It will pick up towards the end of the year.
- Mario once again reiterated that “there are no limits” to how far the ECB will go to ensure that inflation remains at, or near 2% in the long term, after being asked what tools he has left to combat low inflation.
- “There should be no doubt” that the ECB has “power, willingness and determination to act”, Draghi said.
- Draghi was asked whether he thinks central banks have lost some of their power to control inflation. He replied that the ECB is not “surrendering” and will continue to follow its mandate.
- After Deutsche Bank’s horrible results yesterday, Draghi was asked about worries that a new financial crisis could be on its way. “Our mandate is to reach price stability not to protect banks’ and insurers profitability” he replied, but said that ensuring widespread economic growth is the best way to protect financial stability.
- The ECB is closely monitoring capital outflows from China, and how they will affect the Eurozone, he said.
- “Why doesn’t the ECB just ignore oil prices?” asked a journalist from Die Zeitung.
- “We look at the second round effects” of the falling oil price, Draghi said, adding that the bank will definitely take action against those effects.
- Draghi was asked for his opinions on the recent Spanish elections, but abstained, saying that it’s not in his mandate to answer questions on politics.
- “All inflation expectation measures have declined and their correlation with current inflation and oil prices have increased” — Basically, inflation isn’t going anywhere any time soon.
- Draghi also admitted that he doesn’t blame markets for being disappointed by his December decision, and says that “Communication is a two-way affair. It is very hard to put the blame of some disappointment on one side only.”
- If you want to read Mario’s whole opening comments, you can read them on the ECB’s website.
This post was updated continually throughout Draghi’s press conference.