• ECB chief Draghi sees no stability risks from low interest rates

    0

    FRANKFURT: European Central Bank (ECB) chief Mario Draghi said he saw no risks to financial stability at the moment arising from the very low interest rates currently applied in the euro area.

    “I am aware that many of you closely scrutinize the potential effect of the low interest rate environment on financial stability,” Draghi told a hearing by the EU parliament’s committee for economic and monetary affairs in Brussels relayed via webcast.

    “Let me underline that we are closely monitoring risks to financial stability, but we do not see them materializing for the moment.”

    The ECB has held its key interest rates at their current all-time lows since September 2014 as part of a wide range of policies to kickstart economic recovery in the 19 countries that share the euro.

    But critics argue that extended periods of ultra-low rates could lead to asset price bubbles.
    In addition, the ECB has made available unprecedented volumes of cheap loans to banks in the hope they will lend it on to businesses.

    And in an attempt to push up the region’s chronically low level of inflation, the central bank has embarked on a program of so-called quantitative easing, or QE, buying up 60 billion euros ($67 billion) of bonds per month.

    Earlier this year, the measures seemed to show signs of working, with modest recovery clicking in and inflation slowly moving back up.

    But there are fears that falling oil prices and a slowdown in emerging economies such as China could throw a spanner in the works.

    “The macroeconomic environment has become more challenging,” Draghi said.

    The central bank’s updated macroeconomic projections released earlier this month “indicated a weaker economic recovery and a slower increase in inflation rates than we had expected earlier this year.”

    More time was needed “to determine . . . whether the loss of growth momentum in emerging markets is of a temporary or permanent nature,” he said.

    “Should some of the downwards risks weaken the inflation outlook over the medium term more fundamentally than we project at present, we would not hesitate to act,” he pledged.

    The QE, or asset purchase program, had sufficient in-built flexibility said Draghi.

    “We will adjust its size, composition and duration as appropriate, if more monetary policy impulse should become necessary,” Draghi said.

    AFP

    Share.
    loading...
    Loading...

    Please follow our commenting guidelines.

    Comments are closed.