The European Central Bank (ECB) has insisted – again – that it stands ready to do whatever it takes to make sure the Eurozone does not slip into a Japan-style spiral of deflation.
In its monthly economic bulletin published this morning, the ECB said that its extraordinary monetary policy measures – negative interest rates and the €80bn (£63bn) a month quantitative easing programme – are working, but that it had not yet run out of ammo if things start to look ropey once again.
“The governing council [of the ECB] will continue to monitor closely the evolution of the outlook for price stability and, if warranted to achieve its objective, will act by using all the instruments available within its mandate,” the Bank said.
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“It is crucial to ensure that the very low inflation environment does not become entrenched.”
Recent surveys of banks in the Eurozone showed that they had loosened credit standards – the terms and conditions borrowers must meet to be given a loan – in response to the ECB’s policies. Inflation, however, was running at zero per cent in the latest statistics out last month.
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Mario Draghi, the ECB president, has always said that his policies would take time to have any effect, and recently became embroiled in a battle with German politicians over the policies. At his last press conference, he vociferously defended the ECB’s independence and said that it – and it alone – would decide the course of monetary policy in the Eurozone.
Indicating that their current policies are going to be around for a while yet, the ECB said today: “It is essential to preserve an appropriate degree of monetary accommodation as long as needed in order to underpin the momentum of the Eurozone’s recovery and to accelerate the return of inflation.”