The European Central Bank held its main interest rates completely unchanged this month.
ECB president Mario Draghi just spoke at a media briefing, outlining the ECB’s stimulus plans and the central bank’s view of the European economy. Here are his full set of opening remarks.
The major points to take away are:
- Significantly lower forecasts for growth and inflation
- The ECB will look at its stimulus measures again early next year (when it seems likely to unveil more easing).
- Draghi says the ECB is willing to do QE (buying government bonds), as well as buying anything “except gold.”
- The “expectation” that the ECB’s balance sheet will rise by about €1 trillion is not quite a target, and though a “vast majority” of the governing council agreed with it, the decision wasn’t unanimous.
The ECB thinks GDP growth will be 0.8% this year, against 0.9% before, 1% next year against 1.6% before, and 1.5% in 2016 against 1.9% before. Growth was expected to be low before, but the latest outlook is even bleaker.
Inflation is expected to be just 0.7% in 2015, against 1.1% expected before. Inflation will rise to just 1.3% by 2016.
Though Draghi said the ECB would look again at stimulus, he added that the “early” in “early next year” did not mean January. We could have to wait two or three months for more easing, by the sound of it.
Draghi also said the effect of lower prices was “unambiguously positive.” That’s despite the fact that markets are now pricing in deflation for Europe in January because of falling oil prices.
A “vast majority” of the governing council was in favour of the ECB’s new balance sheet target/expectation, but the decision was not unanimous. No prize for guessing which ECB governing council member might have voted against that commitment.
The ECB is convinced that QE is legal, as Draghi said it, “would not be best use of our time to discuss things that are illegal.”
A lot of analysts had already expected the ECB to announce a bigger programme of asset purchases in the first few months of next year. That’s one way the ECB could try to boost economic conditions, either by buying government bonds (usually known as QE) or a wider range of corporate bonds.
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