In view of continued inflationary volatility, the ECB did not change its language towards the financial markets on Thursday 20 July, deciding instead to push back any discussion on a potential tightening up of monetary policy, in particular the exit strategy for the 'quantitative easing' (QE) operation, until the autumn.
The Governing Council has faith in the recovery of the Eurozone economy, but unanimously agrees that it is too early to change the accommodative monetary policy, the President of the ECB, Mario Draghi, announced. He went on to say that we need to be “persistent, consistent and prudent”, because the level of inflation is not yet where it should be.
In June, Eurozone inflation stood at 1.3%, down from May (1.4%), due to a drop in energy prices. According to the ECB, headline inflation is expected to remain at a similar level over the coming months, which is still a long way off the target value of close to but below 2%. As for the underlying inflation (not including energy prices and foodstuffs), convincing signs of an upturn are still to be observed, as domestic cost pressures, including wage growth, are still “subdued”.
Given these uncertainties, the ECB was reluctant to set a date to launch discussions on the exit strategy for QE, in the framework of which nearly €1.64 trillion in sovereign debt securities had been bought up as of Friday 14 July. This will happen in the autumn, Draghi said.
Between now and then, the European institution is sticking to its usual narrative, stressing that the programme of buying up principally sovereign debt instruments at a monthly pace of €60 billion would continue until the end of 2017. In the event of any turnaround in the economy, it stands ready to increase the scale and duration of the QE operation until the inflation trajectory is sustainably in line with its mission. “The last thing we want is an economic squeeze”, Draghi stressed.
Greece. When asked about requests from the Greek authorities to resume the issuance of medium- and long-term sovereign debt, the ECB President said that such an initiative should be part of an “overall strategy” to exit the third Greek bailout programme, which itself must be implemented rigorously. (Original version in French by Mathieu Bion)