Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ News / World/  Mario Draghi says QE proving its worth as economy on track
BackBack

Mario Draghi says QE proving its worth as economy on track

ECB president said the asset purchase programs are proceeding well

A file photo of ECB president Mario Draghi. Photo: BloombergPremium
A file photo of ECB president Mario Draghi. Photo: Bloomberg

Frankfurt: Mario Draghi said monetary policy stimulus is filtering through to the economy as planned, as he insisted the European Central Bank needs to see its bond-buying plan through to the finish.

“The asset purchase programs are proceeding well," the ECB president said at a press conference in Frankfurt on Wednesday, after officials kept interest rates on hold. He unveiled economic forecasts for a pickup in growth and inflation in the next three years similar to the outlook from March. “Reaching our objectives is conditional on the full implementation of our monetary policy stance."

Since the ECB started its €1.1-trillion ($1.2 trillion) quantitative easing program three months ago, inflation in the 19-nation euro area has bottomed out, even though it remains far below the ECB’s goal of just below 2%. An improving economic performance comes despite the uncertainty created by talks on Greece as the country flirts with default.

“There should be a strong agreement—one that produces growth," Draghi said, while declining to give details on current negotiations over the country’s bailout package. Greek Prime Minister Alexis Tsipras will meet European Commission president Jean-Claude Juncker in Brussels on Wednesday evening.

“We expect the economic recovery to broaden, and domestic demand should be further supported by monetary policy measures," Draghi said. “The recovery is on track exactly according to our projections."

Market volatility

German 10-year bonds fell, sending yields to the highest this year, as Draghi said markets must get used to periods of higher volatility after a rout in sovereign debt across the euro area.

The chief area of good news for policy makers is evidence the deflation scare that helped usher in QE may be on the wane. The inflation rate in the euro area was positive for the first time in six months in May, rising to 0.3% from zero and beating economists’ forecasts. Core inflation, which strips out typically volatile energy and food prices, was 0.9%, the fastest in nine months.

Presenting fresh forecasts, Draghi said the outlook remains basically unchanged. Inflation will be 0.3% this year instead of zero as previously predicted, and will reach 1.8% in 2017. Growth in 2015 is expected to average 1.5%, then 1.9% in 2016, before a 2% pace the year after.

Global economy

At the same time, the ECB president warned that slowing global growth could threaten those scenarios.

“We had expected figures stronger than out projections," he said. “There has been some loss of momentum, mostly due to the weakening of economies outside the euro area."

The Organization for Economic Cooperation and Development (OECD) cut its global growth forecast on Wednesday, saying investment is lagging and risks including a possible Greek default are hurting confidence.

On Greece, “all our energies should be focused on finding a strong agreement along the lines I have described," he said. “Everything else would follow easily."

Draghi said there’s still a long way to go on the road to a euro-zone recovery, and there is no discussion yet about how to exit from the current policy programs. Purchases of sovereign debt, covered bonds and asset-backed securities are intended to average a total of €60 billion a month through September 2016.

“We are not going to be happy with one data point of inflation," he said. “We will have to look through the medium term." Bloomberg

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 03 Jun 2015, 05:50 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App