ECB chief Draghi: Asset purchases are going smoothly; ECB will meet its price stability mandate; reiterates degree of accommodation to be re-examined at the Dec ECB meeting because of downside risks - comments from Frankfurt
- Asset purchases are proceeding smoothly and continue to have a favourable impact on the cost and availability of credit for firms and households. But even though domestic demand remains resilient, concerns over growth prospects in emerging markets and other external factors are creating downside risks to the outlook for growth and inflation. In this context, the degree of monetary policy accommodation will need to be re-examined at the Governing Councils December meeting. The Governing Council is willing and able to act by using all the instruments available within its mandate if warranted in order to maintain an appropriate degree of monetary accommodation.
- History shows that deflation can be just as damaging to the prosperity and stability of our economies as high inflation.
- But even though domestic demand remains resilient, concerns over growth prospects in emerging markets and other external factors are creating downside risks to the outlook for growth and inflation
- One concern is low interest rates unfairly punish savers. I fully understand this low interest rates of course lead to low nominal returns on certain types of assets. But I think the extent of disquiet with the ECB about this issue also reflects some misunderstandings
- First, what matters for savers is not nominal returns on liquid assets such as deposits, but real returns i.e. what those returns actually buy on the portfolios of assets that most households hold, which include for example shares
- Second, we need to keep in mind why interest rates are so low today. It is not an arbitrary decision of the central bank; it is because the euro area has been in a long and deep crisis where the economy needed low interest rates to recover. And what would happen if we were to raise rates in that environment? The answer is that it would only push us back into recession, which would mean lower incomes and more job insecurity for everyone.
- If anybody is to put pressure on governments to enact structural reforms, it has to be other governments within a democratically-agreed framework. Indeed, this is why the ECB has frequently called for stronger European institutions for economic policymaking