FRANKFURT, April 3 The European Central Bank kept interest rates steady on Thursday despite a fall in inflation to its lowest in more than four years, counting on the euro zone recovery to gain strength unaided.
Following are comments by ECB President Mario Draghi at a post-meeting news conference.
BUYING PRIVATE-SECTOR DEBT, NEED TO REVIVE ABS MARKET:
"... There are obviously different preferences (within the governing council) about which QE would be more effective, and we will continue working on that in the coming weeks.
"... It's not easy to design a programme of QE on private debt that is large in size and does not have risks for financial stability ... That's why the ECB is so squarely behind the need to develop an ABS market, because that is where the largest pool of private sector asset lies."
"We are a bank-based economy so if we are able to have these loans being correctly priced and rated and traded like it used to happen in the ABS before the crisis, then we naturally have a very large pool of assets. The ECB is squarely behind this in a variety of ways, first and foremost in its action to revisit the regulation for ABS."
Draghi noted that at the high point of the crisis the regulation for ABS did not distinguish between simple ABS, backed by mortgages or SME loans, and complex, highly structured ABS, despite a much higher default rate on the latter.
"We have to revisit this and we find ample agreement in other monetary policy jurisdictions, and as a matter of fact the ECB will present a joint paper with the BoE (Bank of England) on this point at the next IMF meeting."
ON THE IMF
"The IMF has been of recent extremely generous in its suggestions on what we should do or not do, and we are really thankful for that. But the viewpoints of the Governing Council are in a sense different.
"And frankly, I would like the IMF to be as generous as they have been towards us also with other monetary policy jurisdictions, like for example issuing statements just the day before an FOMC meeting would take place."
"There is no doubt that profound changes are taking place in the energy market ... This had an immediate impact in underestimating the rate of change in prices."
NEGATIVE DEPOSIT RATES
"(Negative deposit rate) certainly was an instrument which received a good deal of attention during today's discussion. A lowering of the corridor was also another point of today's discussion."
"My biggest fear is actually to some extent a reality, and that is the protracted stagnation - longer than we have in our baseline scenario - and even so, right now it's pretty severe."
"The levels of unemployment that are - even though they have stabilised and we see marginal improvements here and there - they are very high. And the longer they persist the more likely is that they'll become structural, namely much harder to lower or to lower through conventional policy measures."
GOVERNING COUNCIL DISCUSSION
"In the course of this discussion we talked about lower interest rates, we talked about lower deposit facility rate, we talked about prolonging the fixed-rate full allotment, we talked about QE ... So there was an ample and rich discussion which is confirmed by the statement that I already read about the unanimity of the Governing Council and its commitment to fight risks for price stability."
ON DESIGNING A QE PROGRAMME FOR EURO ZONE
"In the United States, the effect of QE is immediate on all the asset prices, and the effect of the term premium is also quite direct, because it's an economy based on capital markets. In our case it's an economy based on the bank lending channel and ... the programme has to be carefully designed in order to take this element into account."
WHY QE WAS DISCUSSED
"The longer the period of low inflation, the higher the risk for inflation expectations in the medium and the long term. That is why we discussed (QE)."
"The forward curves, the medium-term forward curves and the short-term money market curves remain pretty stable. So if you judge success of forward guidance by this measure, you would ... define the forward guidance as having been quite successful."
MORE INFORMATION NEEDED ON INFLATION
"We need more information to assess whether there has been a change in the medium-term (inflation) outlook."
DEFLATION RISK HASN'T INCREASED
"We don't see the risk to deflation as having increased with respect to our assessment."
"The exchange rate is very important for price stability, so much so that we have made an explicit reference in the introductory statement ... The possible repercussions of both geopolitical risks and exchange rate developments will be monitored closely.
"As I said several times, it is not a policy target. It is an increasingly important factor in our medium-term assessment of price stability."
MANDATE INCLUDES QE
"All instruments that fall within the mandate, including QE, are intended to be part of this statement. There was, in fact, during the discussion we had today, there was a discussion of QE."
"The Governing Council sees both upside and downside risk to the outlook for price developments as limited and broadly balanced over the medium term."
GRADUAL INFLATION INCREASE
"Inflation is expected to pick up somewhat in April partly related to the volatility of service prices in the months around Easter. Over the following months, annual HICP inflation is expected to remain low before gradually increasing during 2015 to reach levels closer to 2 percent towards the end of 2016."
"The risks surrounding the economic outlook for the euro area continue to be on the downside. Developments in global financial markets and in emerging market economies, as well as geopolitical risks, may have the potential to affect economic conditions negatively."
READY TO ACT SWIFTLY
"We will monitor developments very closely and we will consider all instruments available to us. We are resolute in our determination to maintain a high degree of monetary accommodation and act swiftly if required."
FURTHER EASING POSSIBLE
"We do not exclude further monetary policy easing and we firmly reiterate that we continue to expect the ECB interest rates to remain at present or lower levels for an extended period of time."
"Inflation expectations for the euro area over the medium to long term continue to be firmly anchored."
READY TO ACT IN EVENT OF PROLONGED LOW INFLATION
"The Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate in order to cope effectively with risks of a too prolonged period of low inflation."
"The moderate recovery of the euro area economy is proceeding in line with our previous assessment."
"Recent information is consistent with our expectation of a prolonged period of low inflation followed by a gradual upward movement in HICP inflation rates." (EMEA MPG Desk +44 207 542 4441)