LOOSE monetary policy is at last getting through to the real economy, European Central Bank boss Mario Draghi said yesterday.
The low rate of inflation in the Eurozone prompted some analysts to call for lower, or even negative, rates.
Another option to push up consumer price inflation, which slowed to 0.8 per cent in the year to December, would be to print money as the UK and US have done.
But Draghi said there was no need for drastic measures yet.
“Global demand is if anything a little stronger, and on domestic demand look at the factors helping the recovery spread,” he said. “One is the very accommodative monetary policy which is now finding its way through the economy. The second relates to bond markets – confidence is coming back.”
“There is also less of a fiscal drag than last year. Six months ago we would not have said this, even three months ago we would have been less explicit.”
However, he was careful to reassure markets he would not be withdrawing the current stimulus. Instead, Draghi said he would maintain rates as long as inflation looks like returning close to two per cent in the coming years, and could loosen further if need be.
“Draghi sounded more upbeat on the improving conditions while at the same time strengthening the ECB’s commitment to act in case of a worsening inflation outlook and an unwarranted increase in money market rates,” said Societe Generale analyst Anatoli Annenkov.