The ECB is ready to intervene decisively to bring inflation back to adequate levels, both by strengthening the purchase plan and also by acting on rates. This was stated today, Friday, by the president of the ECB Mario Draghi speaking at the European banking congress in Frankfurt. It is a further step towards a strengthening of the stimulus action on 3 December, when the next meeting of the board of the European central bank is scheduled. After the intervention, the spread Btp-Bund dropped to 101 points and the euro is back below 1,07 on the dollar.
“If the decision is that the current trajectory of our policies is not sufficient to achieve” the target of inflation close to 2% over the medium term “we will do what is necessary to get it going again as soon as possibleDraghi said. The plan for the purchase of public and private securities launched by the ECB in the spring of this year (the so-called QE) "is a powerful and flexible tool given that it can be modified in terms of volume, composition and duration to achieve a level of accommodation still higher,” continued Draghi, but other intervention tools are also possible. “Also the level of the rate on bank deposits – added Draghi – can improve the transmission of the effects of the purchase plan, not least by increasing the speed of circulation of bank reserves”.
MORE SOLID RECOVERY, BUT STILL RISKS
He himself clarified the reasons that push Draghi towards new interventions: the recovery today is more solid, he reiterated, and yet "looking also at the broader context, there are still risks. So much so that "we cannot say with complete confidence that the post-crisis recovery process of the euro area is complete".
In fact, the economic recovery in Euroland is proceeding more slowly than expected. “If our assessments are correct, it will take 31 quarters to return to pre-crisis production levels and that will happen in the first quarter of 2016”. “After the collapses of the '70s, '80s and '90s – continued Draghi – it took the countries that now make up the euro area between 5 and 8 quarters to regain their pre-recession production levels. During the current recession - he added - which is considered worse than that of 1930, the American economy needed 14 quarters to return to its pre-crisis peaks”.
STABILIZING INFLATION AT 2%
In conclusion, on 3 December the ECB "will thoroughly assess the strength and persistence of the factors that are slowing down the return of inflation towards 2%. We want to be fairly sure that inflation will not only converge” towards the target of a rate close to 2% per annum, but also that it will “stabilise” around these levels over the medium term. “The moderate dynamics of growth and inflation – underlined Draghi – lead to the need for a careful examination of the economy's capacity, without further aid, to return to a trajectory of sustainable growth in conditions of price stability. If not, then further monetary stimulus will be needed, which the ECB will not hesitate to provide".
