* Says ECB price stability goal applies in both directions
* Says Downside risks to economic outlook have increased
* Presses govts to agree tougher fiscal rules
* Says "other elements might follow", hinting at possible
By John O'Donnell
BRUSSELS, Dec 1 The new president of the
European Central Bank signaled on Thursday it is ready to take
fresh steps to tackle the euro zone debt crisis, saying risks to
the economy have grown and banking sector constraints bode ill
for the coming months.
Highlighting action the ECB and other central banks took on
Wednesday to provide dollar liquidity, Mario Draghi - a month
into his presidency - said the bank aimed to ensure inflation
did not undershoot or exceed its target of just below 2 percent.
Markets read that and the warning of growing downside risks
to the economic outlook as pointing to a second cut in official
interest rates in as many months at next week's ECB policy
meeting, pushing the euro to a session low.
"The ECB's monetary policy is constantly guided by the goal
of maintaining price stability in the euro area over the medium
term -- and this applies to price stability in both directions,"
Draghi told the European Parliament.
"Downside risks to the economic outlook have increased."
Draghi stressed that he was speaking in the ECB's
pre-meeting period and that nothing he said should be
interpreted in terms of future policy decisions.
But many investors read the comments as raising the chances
for a rate cut next week over which analysts have been divided.
The bank cut rate last month to 1.25 percent.
"These comments do open up the chance for a rate cut," said
Jeremy Stretch, head of currency strategy at CIBC World Markets.
"Next week we will have the ECB staff forecasts and we will
surely get a substantial downgrade to growth and inflation
forecasts. All of which will lead to expectations of a rate cut
by the ECB and extension of non-standard measures. The markets
will be very frustrated if they don't get that next week."
Draghi also pressed euro zone governments to adopt a "new
fiscal compact" -- an agreement on tighter budget rules that he
said would help restore financial markets' confidence in the
"Other elements might follow, but the sequencing matters,"
he said, suggesting the ECB could do more if governments move
first on budget rules. "It is first and foremost important to
get a commonly shared fiscal compact right."
"I think the next few days will be very important to tell us
whether we make progress on this," he later added, pressing EU
leaders to reach an agreement at a crucial summit they are
holding on Dec 9.
Germany and France have promised to come up with proposals
for greater fiscal integration of the euro zone for a summit on
Dec. 9, a day after the ECB next meets.
By saying "other elements might follow", Draghi appeared to
be leaving open the possibility of a bigger ECB role in tackling
the crisis, which has seen investors flee the euro zone bond
market, fuelling doubts about the survival of the euro currency.
The ECB has so far resisted political pressure from some
countries to ramp up its bond purchase programme (SMP) to
relieve pressure on those governments embroiled in the crisis.
"In his remarks concerning the SMP, Mr Draghi appeared
implicitly to hold up the offer of a significantly higher pace
of debt purchases under the SMP and potentially other measures,
provided that euro area governments were to commit to a new
fiscal pact," Callow wrote in a research note.
Draghi said the bond purchase plan was a means "to repair
monetary transmission channels", adding that: "In our view now
the most important thing for the ECB to do is to repair the
An ECB survey released separately on Thursday showed small
and medium-sized businesses in the euro zone expect their access
to bank loans to worsen in the near future.
Although it was the first time Draghi addressed a full
sitting or so-called plenary session of the European Parliament,
only a handful of its 736 lawmakers turned up to listen or ask
him a question.
For those who were present, Draghi delivered a sobering
message on the economic outlook: "We have observed serious
credit tightening in the most recent period, which combined with
the weakening of the business cycle, doesn't bode at all well
for the months to come," he said.