European Central Bank president Mario Draghi is holding a press conference latest monetary policy decision from the ECB saw the bank unexpectedly cut interest rates.
Draghi just announced that the ECB will begin a quantitative easing program in October, comprised of asset-backed securities and Euro-denominated covered bonds.
Draghi said the ECB is unanimous in its committed to using additional and unconventional instruments if needed to address risks of a prolonged period of inflation.
Draghi said the economic recovery in Europe is likely to be dampened by: unemployment, balance sheet adjustments in the private and public sectors, and negative loan growth.
The ECB also cut its 2014 and 2015 GDP projections, while revising its 2016 projection upwards. The ECB expects 2014 GDO of 0.9%, down from a prior view ot 1%, while 2015 GDP is expected to come in at 1.6% against previous expectations for 1.7%.
In 2016, the ECB sees GDP growing at 1.9%, up from 1.8% previously.
Draghi also acknowledged that heightened geopolitical risks may have the potential to negatively affect economic conditions.
The ECB said it expects to inflation to remain low in through 2016. Expectations for inflation in 2014 are 0.6%; 1.1% in 2015; and 1.4% in 2016.
As he did in Jackson Hole, Draghi again said that fiscal policies have hurt economic growth, and said that Euro area countries should not unravel the economic progress made with fiscal consolidation. Draghi added that important structural steps have been taken in some Eurozone countries, but not in others.
Draghi said in response to a question that the ECB’s rate decision was not unanimous.
Draghi said that additional easing measures were discussed, with some members wanting to do more than announced today, and others wanting to do less.
Draghi also said that a broader asset purchase program was discussed.
In response to a question about what he considers quantitative easing, or QE, Draghi said QE is the outright purchase of assets, and said this can be based on private sector or public sector assets, or both.
Draghi said that Thursday’s measures are oriented towards “credit easing,” but said it also clear the ECB will buy outright the senior tranche of asset-backed securities.
Draghi also said that it is difficult to assess, at this time, the size of the program announced on Thursday.
Draghi said most of the decision to act at this meeting was tied to the downward movement in inflation indicators in August.
With regard to interest rates, and banks that are considering participating in the ECB’s first TLTRO, or targeted long-term refinancing operation, Draghi said: “We are at the lower bound.”
Draghi said the ECB staff sees a return of inflation because of recovery, exchange rates, monetary policy, as well as the increase of certain goods, notably food.
Draghi said that for central banks, it is hard to reach to reach inflation goals only based on monetary policy. “You need growth, you need low unemployment, and for that, you need other things,” Draghi said.
Draghi said there is no “grand bargain,” but added that bankers and politicians, “simply need to do their own jobs.”
The ECB cut its main refinancing rate to 0.05%, its marginal lending facility to 0.3%, and its deposit facility to -0.2%.
These rates were expected to remain unchanged at 0.15%, 0.4%, and -0.1%, respectively.
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