Monday, September 1st19.6°C
22736
22746

ECB chief dismisses deflation fears, stresses readiness to 'unconventional measures' if needed

BRUSSELS - The European Central Bank on Thursday dismissed fears that consumer prices might fall in the 18-nation eurozone, a situation that would drag down the economy. It stressed, however, that it is ready to counter that threat in new ways if needed.

Another drop in the inflation rate in March, to 0.5 per cent, raised concerns the eurozone might slip into deflation, when consumers put off purchases in hopes of bargains later and companies cut prices to entice buyers. Such a downward spiral can snuff out economic growth for years.

After the ECB decided to leave its main interest rate at a record-low 0.25 per cent Thursday and not provide any further stimulus, President Mario Draghi noted the inflation figures are consistent with the bank's forecasts of a "prolonged period of low inflation."

But to show it is not complacent about the danger, the central bank beefed up its rhetoric.

Draghi said the ECB's governing council is unanimous in its determination to maintain a highly accommodative monetary policy stance and is ready to swiftly use "unconventional measures ... to cope with the risk of a too-prolonged period of low inflation."

Such measures could include a new round of cheap loans to banks or large-scale purchases of financial assets, the so-called "quantitative easing" the U.S. Federal Reserve has been doing. That would increase the amount of money in the economy and aim to lower market interest rates and stoke inflation. But such a move faces legal, political and technical obstacles.

The ECB could also trim its deposit rate below zero, effectively penalizing banks for holding money at the ECB instead of lending it out.

Draghi said unlike in its previous monthly meeting, all measures within the ECB's mandate — including quantitative easing — were discussed.

Analysts said the ECB's statement showed it is increasingly worried about the stubbornly low inflation, but is not at a point yet where it would act.

Carsten Brzeski of ING Bank noted Draghi's tone clearly indicates it's "on even higher alert than before."

While quantitative easing still seems unlikely, Brzeski said, the ECB made it clear that such measures were now backed by all ECB members — including the German central bank governor Jens Weidmann, who had opposed such ideas in the past.

For now, Draghi said, the ECB is sticking to its forecast that the eurozone will not see deflation.

He noted the unexpectedly low inflation data for March was also influenced by seasonal factors, meaning the rate may well rise next month.

In a rare public rebuke, Draghi rejected advice by International Monetary Fund chief Christine Lagarde that the ECB should ease its monetary policies to boost inflation.

Draghi grinned as he took a question on Lagarde's comments, causing laughter during the press conference in Frankfurt.

"The IMF has been of recent extremely generous in its suggestions on what we should do or not do," he said, adding that the ECB's views "are in essence different."

In Europe, the inflation rate is the main driver of monetary policy decisions — unlike in the United States, where the Fed also takes unemployment figures into account. The ECB aims to keep inflation close to but just below 2 per cent.

Unemployment, meanwhile, remains stuck near a record-high of around 12 per cent following years of economic and financial upheaval.

Besides having a social cost, high unemployment also weighs on consumption and the wider economy. The EU predicts the eurozone will grow 1.1 per cent this year. While that would be the bloc's best performance since 2011, it would still pale in comparison to the U.S. economy, which is expected to grow around 3 per cent.

This latest dip in inflation comes at a time when the euro has been buoyant in foreign exchange markets. A higher currency can push inflation further down in two ways: It can make imports cheaper and it weighs on economic activity by making exports more expensive.

While influencing the exchange rate is not one of the ECB's explicit policy targets, Draghi acknowledged the bank is closely monitoring it because "it's an increasingly important factor in our medium-term assessment of price stability."

The prospect of deflation is especially worrisome for those eurozone nations with high debt. When prices fall, it becomes harder to pay down debts, which are fixed in nominal terms.

___

AP writer Geir Moulson in Berlin contributed reporting.

___

Follow Juergen Baetz on Twitter at http://www.twitter.com/jbaetz

The Canadian Press


Read more Business News

22870


Recent Trending




Today's Market
S&P TSX15625.73+67.561
S&P CDNX1023.991.62
DJIA17098.4518.88
Nasdaq4580.271+22.577
S&P 5002003.37+6.63
CDN Dollar0.9203+0.0009
Gold1281.70-2.1001
Oil95.96+1.29
Lumber349.60+2.60
Natural Gas3.965+0.054

 
Okanagan Companies
Pacific Safety0.20+0.005
Knighthawk0.01-0.005
QHR Technologies Inc1.190.00
Cantex0.08+0.01
Anavex Life Sciences0.25+0.01
Metalex Ventures0.0750.00
Russel Metals36.48+0.09
Copper Mountain Mining2.93+0.02
Colorado Resources0.180.00
ReliaBrand Inc0.10+0.001
Sunrise Resources Ltd0.0250.00
Mission Ready Services0.245-0.005

 



22929

FEATURED Property
20423404304 MacDonald Rd.
10086511 bedrooms
$974,000
more details
image2image2image2
Click here to feature your property
Please wait... loading


At the Core: Lessons in pricing from Apple

Apple has taught many entrepreneurs the importance of design, how to create buzz when introducing new products to the marketplace, how to pioneer new technology and the importance of superior quality....


New Real Estate Brokerage in town

Move over “big guys” there’s a new brokerage in town featuring local expertise, long standing experience and a fresh boutique approach. Kelowna, August 31 2014 – You may have...


How much mortgage should you carry?

There are several things to consider when deciding how much home to buy. 1. Draw up a budget including the new mortgage payments. While the rules used by most lenders require that the mortgage paym...

_








Member of BC Press Council


22810