European Central Bank President Mario Draghi said the economic outlook is
worsening and the bank stands ready to activate its bond-purchase program if
governments fulfil the necessary conditions.
“We are ready to undertake” Outright Monetary Transactions, “which will help to avoid extreme scenarios,” Draghi said today at a press conference in Frankfurt after policy makers left the benchmark interest rate at a historic low of 0.75 percent. “The risks surrounding the economic outlook remain on the downside” and underlying inflation pressures “should remain moderate,” he said.
Draghi yesterday fuelled speculation that the ECB might put rate reductions back on the agenda, saying the debt crisis is starting to hurt Germany -- the pillar of economic strength in the euro area -- and that inflation risks are “very low.” Today he said monetary policy is already “very accommodative” and real interest rates are negative in some countries.
“We have pencilled in an interest-rate cut in December,” said Howard Archer, chief European economist at IHS Global Insight in London. “However, it is very possible that the ECB could delay trimming interest rates until early 2013 due to concerns that the impact of a near-term cut could be diluted by the problems in monetary policy transmission channels.”
“It’s entirely up to Spain and the Spanish government to take the decision,” Draghi said. At the same time, “since the OMT announcement there have been a series of improvements” on financial markets, including “a return of flows from the rest of the world,” he said.
Spanish Prime Minister Mariano Rajoy said on Nov. 6 he needs to know how much the ECB would push down Spain’s bond yields before his government applies for aid and signs up to the conditions attached.
“The ECB can’t give any assurances ex ante,” Draghi said. “The Governing Council will take the decision in total independence. There isn’t any automatic quid pro quo.”
The euro weakened as Draghi spoke before recovering to trade little changed at $1.2745 at 3:35 p.m. in Frankfurt.
To read more about this news click here.
“We are ready to undertake” Outright Monetary Transactions, “which will help to avoid extreme scenarios,” Draghi said today at a press conference in Frankfurt after policy makers left the benchmark interest rate at a historic low of 0.75 percent. “The risks surrounding the economic outlook remain on the downside” and underlying inflation pressures “should remain moderate,” he said.
Draghi yesterday fuelled speculation that the ECB might put rate reductions back on the agenda, saying the debt crisis is starting to hurt Germany -- the pillar of economic strength in the euro area -- and that inflation risks are “very low.” Today he said monetary policy is already “very accommodative” and real interest rates are negative in some countries.
“We have pencilled in an interest-rate cut in December,” said Howard Archer, chief European economist at IHS Global Insight in London. “However, it is very possible that the ECB could delay trimming interest rates until early 2013 due to concerns that the impact of a near-term cut could be diluted by the problems in monetary policy transmission channels.”
Policy Transmission
The ECB’s efforts to repair its policy transmission mechanism are being hampered by Spain’s reluctance to ask for a bailout that would open the door to ECB bond purchases.“It’s entirely up to Spain and the Spanish government to take the decision,” Draghi said. At the same time, “since the OMT announcement there have been a series of improvements” on financial markets, including “a return of flows from the rest of the world,” he said.
Spanish Prime Minister Mariano Rajoy said on Nov. 6 he needs to know how much the ECB would push down Spain’s bond yields before his government applies for aid and signs up to the conditions attached.
“The ECB can’t give any assurances ex ante,” Draghi said. “The Governing Council will take the decision in total independence. There isn’t any automatic quid pro quo.”
The euro weakened as Draghi spoke before recovering to trade little changed at $1.2745 at 3:35 p.m. in Frankfurt.
To read more about this news click here.
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