ECB considers more stimulus as eurozone recovery wanes

FRANKFURT — European Central Bank (ECB) president Mario Draghi threw the door wide open yesterday for more dramatic action to rescue the eurozone economy, saying “excessively low” inflation had to be raised quickly by whatever means necessary.

Mr Draghi said there was no sign of economic improvement in the months ahead and that the ECB would expand and step up its programme to pump more money into the currency bloc if its current measures fell short of lifting inflation.

“We will do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires of us,” Mr Draghi said in a speech at an annual banking congress.

“If, on its current trajectory, our policy is not effective enough to achieve this, or further risks to the inflation outlook materialise, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases,” he added.

Any new action would follow a flurry of activity since June that has included interest rate cuts, long-term bank loans and covered-bond purchases, with buying of asset-backed securities due to start as soon as yesterday.

“Draghi all but announced that the central bank will step up monetary easing soon. Mr Maybe has become Mr Definitely,” said Mr Nick Kounis, an economist with ABN Amro. “We think the ECB would exhaust other alternatives before moving to sovereign QE (quantitative easing).”

Mr Draghi had said on Monday further measures could involve large-scale purchases of government bonds, also known as quantitative easing — a step that is particularly opposed in the bloc’s largest economy, Germany, for fear of mutualising risks.

In his speech at the same event, the head of Germany’s powerful Bundesbank, Mr Jens Weidmann, avoided the subject of monetary policy and instead spoke about banking regulation.

ECB Governing Council member Klaas Knot also said this week that he is sceptical about quantitative easing.

Mr Draghi’s remarks were almost as dramatic as his “whatever it takes” speech in the second quarter of 2012, with which he pulled the eurozone back from the brink.

Having earlier in the week pointed to early signs of improvements, the ECB president yesterday said the economic situation remained difficult and that the latest business survey suggested a stronger recovery was unlikely in the coming months.

The eurozone economy has been mired in low growth and weak inflation for months: Gross domestic product expanded by only 0.2 per cent last quarter and inflation is running at 0.4 per cent, well below the ECB’s goal of just under 2 per cent.

Agencies