The European Central Bank will actively manage its balance sheet and is willing to implement more stimulus if required to stave off the threat of deflation in the euro area, ECB President Mario Draghi said.
“We are starting a transition from a monetary-policy framework predominately founded on passive provision of central-bank credit to a more active and controlled management of our balance sheet,” Draghi said in his quarterly testimony to European lawmakers in Brussels today.
The ECB president’s comments come after he signaled this month that he intends to expand the institution’s balance sheet by as much as 1 trillion euros ($1.28 trillion) with stimulus measures such as targeted longer-term loans for banks and an asset-purchase program.
Officials are unanimous about embarking on further action if needed to fight the threat of falling prices in the 18-nation currency bloc, he said.
“The Governing Council remains fully determined to counter risks to the medium-term outlook for inflation,” Draghi said.
“Therefore we stand ready to use additional unconventional instruments within our mandate, and alter the size and/or the composition of our unconventional interventions should it become necessary to further address risks of a too prolonged period of too low inflation.”
Downside Risks
The risks surrounding the expected expansion in the euro area “are clearly on the downside,” Draghi said. Recent indicators gave no indication that the sharp decline in economic activity in the region has stopped, he said.
Economic growth in the euro area came to a halt in the second quarter and Draghi has warned that the bloc faces the threat of a deflationary spiral of falling prices and households postponing spending. Figures last week showed that euro-area inflation held at 0.4 percent in August, the weakest pace in almost five years.
That compares with the ECB’s goal of just below 2 percent. “We expect inflation to remain at low levels over the coming months before increasing gradually in 2015 and 2016,” Draghi reiterated. Policy makers will “focus in particular on repercussions of damped growth dynamics” and “closely monitor risks to price stability,” he said.
Longer-Term Loans
To spur lending to the real economy, the Frankfurt-based central bank last week started the targeted-loan program that it announced in June. Banks borrowed a less-than-estimated 82.6 billion euros, possibly raising pressure on Draghi to implement widespread quantitative easing to reach his balance-sheet goal.
“While it is yet too early to assess the impact of the TLTROs on the broader economy, their announcement already had a noticeable positive impact on financial-market sentiment,” Draghi said. The allotted amount “is within the range of take-up values we had expected based on banks’ revealed behavior under previous programs.”
The ECB will hold a total of eight TLTROs through 2016. The next one is scheduled for December and Draghi said today “the September and December operations should be assessed in combination.”
To reach its stimulus goals, the ECB committed this month to buying asset-backed securities and Draghi is scheduled to release more details of this program after the next Governing Council meeting in Naples, Italy, on Oct. 2.
“Outright purchases will increase the size of the ECB’s balance sheet, but the additional risk exposure will be limited,” he said. “Under the ABS purchase program we will be purchasing senior and guaranteed mezzanine tranches.”
bloomberg.com
“We are starting a transition from a monetary-policy framework predominately founded on passive provision of central-bank credit to a more active and controlled management of our balance sheet,” Draghi said in his quarterly testimony to European lawmakers in Brussels today.
The ECB president’s comments come after he signaled this month that he intends to expand the institution’s balance sheet by as much as 1 trillion euros ($1.28 trillion) with stimulus measures such as targeted longer-term loans for banks and an asset-purchase program.
Officials are unanimous about embarking on further action if needed to fight the threat of falling prices in the 18-nation currency bloc, he said.
“The Governing Council remains fully determined to counter risks to the medium-term outlook for inflation,” Draghi said.
“Therefore we stand ready to use additional unconventional instruments within our mandate, and alter the size and/or the composition of our unconventional interventions should it become necessary to further address risks of a too prolonged period of too low inflation.”
Downside Risks
The risks surrounding the expected expansion in the euro area “are clearly on the downside,” Draghi said. Recent indicators gave no indication that the sharp decline in economic activity in the region has stopped, he said.
Economic growth in the euro area came to a halt in the second quarter and Draghi has warned that the bloc faces the threat of a deflationary spiral of falling prices and households postponing spending. Figures last week showed that euro-area inflation held at 0.4 percent in August, the weakest pace in almost five years.
That compares with the ECB’s goal of just below 2 percent. “We expect inflation to remain at low levels over the coming months before increasing gradually in 2015 and 2016,” Draghi reiterated. Policy makers will “focus in particular on repercussions of damped growth dynamics” and “closely monitor risks to price stability,” he said.
Longer-Term Loans
To spur lending to the real economy, the Frankfurt-based central bank last week started the targeted-loan program that it announced in June. Banks borrowed a less-than-estimated 82.6 billion euros, possibly raising pressure on Draghi to implement widespread quantitative easing to reach his balance-sheet goal.
“While it is yet too early to assess the impact of the TLTROs on the broader economy, their announcement already had a noticeable positive impact on financial-market sentiment,” Draghi said. The allotted amount “is within the range of take-up values we had expected based on banks’ revealed behavior under previous programs.”
The ECB will hold a total of eight TLTROs through 2016. The next one is scheduled for December and Draghi said today “the September and December operations should be assessed in combination.”
To reach its stimulus goals, the ECB committed this month to buying asset-backed securities and Draghi is scheduled to release more details of this program after the next Governing Council meeting in Naples, Italy, on Oct. 2.
“Outright purchases will increase the size of the ECB’s balance sheet, but the additional risk exposure will be limited,” he said. “Under the ABS purchase program we will be purchasing senior and guaranteed mezzanine tranches.”
bloomberg.com
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