Brussels, 03/04/2014 (Agence Europe) - The European Central Bank has not ruled out taking action in the future to tackle low inflation, but its medium-term forecasts remain in line with its primary mission of keeping inflation below but close to 2%.
Given the information currently at its disposal, the ECB decided on Thursday 3 April to not make any changes to its main interest rate (0.25% for refinancing operations, 0.75% for the marginal lending facility and 0% for the deposit faculty).
While it has not changed the interest rates, the ECB Governing Council is using stronger language than at its previous monthly meetings when discussing inflation, which fell from 0.7% in February to 0.5% in March according to the latest figures from the EU's statistical office, Eurostat (see EUROPE 11050). The head of the ECB, Mario Draghi, said: “The Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate in order to cope effectively with risks of a too prolonged period of low inflation.”
Draghi, the former head of Banca d'Italia, said that the Governing Council had had a “very rich and ample discussion. Discussion on quantitative easing is not neglected. Also on lower deposit rates, SMP (bond purchase, Ed.), sterilisation, liquidity measures. Each one of them will address specific risks (non targeted LTRO = liquidity; targeted LTRO = lending to economy).”
On Thursday, the Governing Council was asked to what extent the new inflation figures changed its assessment of how inflation would progress over the medium-term. Draghi said that more information was required and he predicted that inflation would rise in April because Easter is later this year than last, and it is a time when service usage rises, particularly transport services.
Asked about the drawbacks of an extended period of low inflation, Draghi said: “The longer the low inflation the higher is the risk for inflation expectations which are at the present time firmly anchored. It makes adjustment of imbalances much more difficult. The real value of public and private debt does not go down as quickly as hoped, and deleveraging becomes more difficult.”
French deficit. Draghi responded curtly to the comments made by the new French finance minister, Michel Sapin earlier the same day that he wanted to review the French deficit reduction trajectory with Europe. The ECB head commented that undermining the established rules undermines confidence. (MB)