Mario Draghi says extraordinary monetary policy supports still needed but flags 8 June meeting for re-evaluation

Jasper Jolly
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Mario Draghi was addressing the European Parliament's economics committee (Source: Getty)

The European Central Bank (ECB) is committed to maintaining its massive levels of monetary stimulus, but the bank’s economists could re-evaluate that stance in June, according to its boss Mario Draghi.

In testimony to the European Parliament’s economy committee, Draghi said the ECB’s top economists remain “firmly convinced that an extraordinary amount of monetary policy support, including through our forward guidance, is still necessary”.

However, Draghi also acknowledged the improving outlook across the Eurozone economy could allow a more upbeat assessment at its meeting on 8 June, when the ECB staff will update their economic forecasts.

Read more: Draghi: Risks to the Eurozone becoming more "balanced" as ECB holds policy

Draghi said: “Downside risks to the growth outlook are further diminishing, and some of the tail risks we were facing at the end of last year have receded measurably.”

The improving outlook in the European economy has led economists and investors to scrutinise every word from the ECB’s policymakers for signs it may be about to start on the road to tighter monetary policy.

The central bank is buying €60bn (£52bn) of bonds every month under its asset purchase programmes (also known as quantitative easing), but the programme is currently set to end in December.

A slower rate of bond purchases by the central bank would trigger less demand, and might therefore push down bond prices (and push up yields, which move inversely).

Read more: No bubble trouble: Draghi says ECB policy will not unleash financial chaos

The ECB is desperate to avoid a replay of the 2013 “taper tantrum” when a similar exit from quantitative easing by the US Federal Reserve caused bond market turmoil.

Draghi again emphasised the central bank will not act to tighten monetary policy until they see a “durable and self-sustaining convergence of inflation toward our medium-term objective”, of two per cent.

While consumer price inflation hit 1.9 per cent in April, the core inflation rate, which strips out the effects of volatile oil and food prices, reached only 1.2 per cent. However, this still represented a big pick-up in inflationary pressure from the 0.7 per cent annual rate recorded in the previous month.

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