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ECB's Draghi abandons tradition

Thursday, July 04, 2013 - 01:47

July 4 - The European Central Bank announces that interest rates are to stay at a record low for an extended period or could even fall further. Rough Cut (no reporter narration).

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(ROUGH CUT - No reporter's narration) (SOUNDBITE) (English) EUROPEAN CENTRAL BANK PRESIDENT (ECB) MARIO DRAGHI SAYING: "The Governing Council took the unprecedented step to give forward guidance in a rather more specific way than it did ever in the past. It says the Governing Council expects the key - so all - interest rates to remain, the key ECB interest rates to remain at present or lower levels for an extended period of time." "Well, I said an extended period of time is an extended period of time. It's not 6 months, it's not 12 months, it's an extended period of time." "Underlying price pressures in the euro area are expected to remain subdued over the medium term. In keeping with this picture, monetary and in particular credit dynamics remain subdued. Inflation expectations for the euro area continue to be firmly anchored in line with our aim of maintaining inflation rates below but close to two percent over the medium term." "Overall, euro area economic activity should stabilise and recover in the course of the year, albeit at subdued pace. The risk surrounding the economic outlook for the euro area continues to be on the downside." "I think Portugal has achieved very remarkable results. Certainly, it's been a painful road and the results that have been achieved have been quite significant, remarkable, if not outstanding." The European Central Bank will keep interest rates at record lows for an extended period and could yet cut them further, the bank's chief, Mario Draghi, said on Thursday (July 4). Draghi made clear that 'an extended period of time' means exactly that and refused to specify the timeframe even further. He added that the council had discussed cutting rates but decided against and said the bank could also consider cutting the deposit rate on bank deposits at the ECB - already at zero - in an attempt to foster more lending. The ECB left its main refinancing rate at 0.5 percent and the deposit rate at zero, as was expected by economists in a Reuters poll. Central banks around the world are facing turbulent financial market conditions since the U.S. Federal Reserve last month set out a plan to exit from its money-printing programme. Whether forward guidance about policy can mitigate the impact of the Fed's move on other countries remains to be seen. An acceleration in euro zone inflation in June and stronger-than-expected consumer spending in France and Germany reinforce the ECB's projection for a slow euro zone recovery late this year, leaving it little grounds to justify a rate cut now. Draghi stuck with the bank's forecast that the euro zone economy would improve in the second half of the year but said the risks to that were skewed to the downside. His intervention represented a marked departure from the bank's June meeting when he doused expectations of any imminent policy action and also from the ECB's customary insistence that it never precommits on interest rate policy. The move also highlights the paucity of policy options open to the ECB at a time of renewed turmoil in the euro zone, referring specifically to Portugal. The bailed-out country's yields have been rising sharply following ministerial resignations that may force an election over continued budget austerity.

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ECB's Draghi abandons tradition

Thursday, July 04, 2013 - 01:47

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