ECONOMY

Draghi says ECB has ‘plenty of instruments’ to revive inflation

draghi-says-ecb-has-plenty-of-instruments-to-revive-inflation

Mario Draghi said he’s concerned about the outlook for euro-area inflation and is determined to reach his price-stability mandate, a day after saying the European Central Bank could step up its stimulus as soon as March.

“We’ve plenty of instruments,” the ECB president said on Friday at the World Economic Forum in Davos, Switzerland. “We have the determination, and the willingness and the capacity of the Governing Council to act and deploy these instruments.”

The comments reflect the ECB’s agreement on Thursday to review its stimulus strategy of buying 1.5 trillion euros ($1.6 trillion) of bonds and driving interest rates below zero. Draghi is priming investors for seven weeks of expectation management until its March 10 gathering, as officials try to guide investors stung by the result of last month’s meeting, when fresh stimulus fell short of predictions stoked at the previous decision.

Draghi said the three current drivers of the euro-area recovery are monetary policy, a fiscal stance that is “broadly neutral if not slightly expansionary,” and lower energy prices that support disposable income. Yet he said policy makers are worried over the risk that ultra-low inflation will persist, undermining the economic revival.

“There’s less reason to be optimistic” over the outlook for consumer prices, he said. “It’s mostly because of the collapse in oil prices but also because of the revision, the downward revision” of economic growth in emerging markets.

Draghi said euro-area monetary policy will diverge from the U.S. for a while. The Federal Reserve’s decision in December to start raising its own rates was “appropriate” given the improving U.S. economy and was “flawlessly executed,” he said.

He also addressed Europe’s political challenges such as the refugee crisis and the Greek bailout. The issue of refugees is both a challenge and an opportunity that will require significant investment, he said.

The Greek government has “made significant progress in making reforms in fiscal consolidation,” he said. “I’m pretty sure that an agreement will be found, so that the first review could be successfully concluded.”

[Bloomberg]