Today the euro is weaker after European Central Bank President Mario Draghi gave a speech at Euro Finance Week and admitted that downside risks have increased and the central bank will do what it must to raise inflation as quickly as possible while hinting at more action being taken at its next meeting in December.
Inflation is weak in the economies of the 19 member currency bloc and remains well below the ECB’s inflation target near 2 percent.
In October euro area inflation rose just 0.1 percent, slightly above -0.1 percent in September but below 0.3 percent in September 2014, according to Eurostat.
Draghi addressed three risks that are holding back growth in the economies of the 19 member euro area.
“To highlight three risks: global growth this year will be the weakest since 2009; this is the weakest euro area rebound since 1998; and the recovery remains very protracted in historical perspective” Draghi said.
Draghi pointed out that the ECB’s monetary policy measures have worked by reversing deflationary pressures and are the dominant force spurring the recovery but he admitted there is still more work to do.
“We cannot say with confidence that the process of economic repair in the euro area is complete” Draghi stated.
Draghi said that at the ECB’s next meeting in December the central bank will “thoroughly assess the strength and persistence of the factors that are slowing the return of inflation towards 2%.”
Draghi explained that the ECB’s asset purchase programme consisting of € 60 billion in monthly purchases of government bonds through September 2016 could be further adjusted in terms of size, composition or duration to achieve a more expansionary stance.
The ECB already has negative deposit rates (-.20) but Draghi hinted that it could be cut even further.
“The level of the deposit facility rate can also empower the transmission of APP, not least by increasing the velocity of circulation of bank reserves” Draghi said.
“If we decide that the current trajectory of our policy is not sufficient to achieve our objective, we will do what we must to raise inflation as quickly as possible. That is what our price stability mandate requires of us” Draghi added.