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"Lowflation" fails to sway ECB yet

Thursday, Apr 03, 2014 - 02:28

April 3 - The European Central Bank is ready to deploy anything in its monetary policy toolbox if inflation stays too low for too long despite keeping interest rates steady. Ciara Sutton reports.

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The euro zone might be recovering but recent clashes in Spain show anger remains. Reforms and cuts brought workers onto the streets. And they've also raised the prospect of a new danger - deflation. Economists say if Spain wants to be competitive it needs inflation to be around 1 percent lower than the euro zone average. But with prices hardly rising anywhere, even in Germany, Spain is flat-lining. Mike Gallagher is Managing Director at IDEAglobal. (SOUNDBITE) (English) MIKE GALLAGHER, MANAGING DIRECTOR, IDEAglobal "The concern is that that adjustment could take a long time and there might be further downward pressure. At the moment I think if you take a good read of all the broader inflation numbers, I think it is correct to say that we don't face deflation, but we do face dis-inflation." Spain had been looking to the ECB for help. But it held the main interest rate at 0.25 percent. ECB Chief Mario Draghi says he wants the euro zone to recover unaided although he is ready to act if needs be. (SOUNDBITE) (English) ECB CHIEF MARIO DRAGHI, SAYING: "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." It's a shift in tone from last month when he wasn't quite so keen to offer intervention. This month Draghi even said quantitative easing had been discussed as well as other measures - those comments sending the euro to a session low. Pierre Briancon from Reuters Breakingviews. (SOUNDBITE) (English) PIERRE BRIANCON, REUTERS BREAKINGVIEWS, SAYING: "I think it is the first time Mario Draghi at this level mentioned the words QE as something the ECB is seriously contemplating. We're still at the exploratory stage, we are talking about a lot of other things - he mentioned liquidity operations. But they are seriously thinking about it, talking about it. Even though on the QE and what constitutes QE in a euro zone context they might not agree together." Euro zone inflation fell to 0.5 percent in March, the lowest in four years and well below the bank's 2% target But even a call for action from the IMF didn't sway Draghi. The ECB says the risk of deflation remains limited and the late Easter holiday could actually be a reason for the latest inflation figures.

"Lowflation" fails to sway ECB yet

Thursday, Apr 03, 2014 - 02:28

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