Thursday, January 9, 2014

ECB says will take "decisive action" if needed

    The European Central Bank (ECB), which earlier today left its refinancing rate steady at a historic low of 0.25 percent, sharpened its message that it was ready to act to counter any rise in market interest rates and underlined that it would maintain an accommodative policy stance for as long as its takes while its policy rates would remain at the current, or lower levels, for an extended period.
    ECB President Mario Draghi expressed his continued concern over the potential for higher money market rates to blunt the impact of the ECB's low policy rates on economic activity, saying the ECB was "monitoring developments closely and are ready to consider all available instruments."
    "Overall, we remain determined to maintain the high degree of monetary accommodation and to take further decisive action if required," Draghi told a press conference, sharpening his message by adding the words of "decisive action" to earlier statements.
    Draghi repeated that the ECB expects inflation to remain low for a "prolonged period" before gradually moving up towards the bank's target of inflation below, but close to 2 percent.
    A drop in euro area inflation to 0.8 percent in December from November's 0.9 percent, was expected by the ECB, and due to lower service prices, and Draghi said he expects inflation to remain around current levels in coming months. Inflation expectations remain anchored to the ECB's target.

    "Against this background, the governing council strongly emphasizes that it will maintain an accommodative stance of monetary policy for as long as necessary, which will assist the gradual economic recovery in the euro area," Draghi said, ratcheting up the guidance adopted by the ECB in July last year by adding the words of "strongly emphasizes" to the previous statements of maintaining an accommodative stance.
    "Accordingly, we firmly reiterate our forward guidance that we continue to expect the key ECB interest rates to remain at present or lower levels for an extended period of time," he said, adding the words of "firmly reiterate" to past statements.
    Economic activity in the euro area - enlarged to 18 states from Jan. 1 following Latvia's membership - is expected to continue to gradually improve though data for industrial production point to a weak start to the fourth quarter while confidence indicators have improved, Draghi said.
    "Looking at 2014 and 2015, output is expected to recover at a slow pace," Draghi said. The ECB forecasts growth of 1.1 percent in 2014 and 1.5 percent in 2015 after a contraction of 0.4 percent in 2013 following 2012's drop in Gross Domestic Product of 0.6 percent.
    The euro area's GDP rose by only 0.1 percent in the third quarter from the second quarter for annual contraction of 0.4 percent, the seventh quarter of a shrinking economy.
    "The risks surrounding the economic outlook for the euro area continue to be on the downside," Draghi said, adding that financial markets have the potential to negatively affect economic conditions along with the risk of higher commodity prices, weaker-than-expected domestic demand and exports, and slow implementation of structural reforms.


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