Following the meeting of the Governing Council of the European Central Bank (ECB) on Thursday 25 January, its President, Mario Draghi, said that the current volatility of the exchange rates - in particular the appreciation of the euro against the dollar - represents a “source of uncertainty which requires monitoring with regard to its possible implications for the outlook for price stability”.
Draghi was responding to comments made the day before at the World Economic Forum in Davos by the American Secretary of State for the Treasury, Steven Mnuchin, to the effect that a weaker dollar would boost American exports.
The ECB believes the rise of the single currency against the dollar is certainly a result of a return to economic growth in the Eurozone - where GDP is anticipated to grow by 2.4% in 2017 and 2.3% in 2018 - but also of comments by other vital players in the economic world. There is a difference when we say ‘monetary policy decisions will have an effect on exchange rates’ and when someone else says ‘we must achieve a lower exchange rate because this boosts exports’, Draghi noted.
On Thursday, the euro reached the symbolic level of $1.25, which will make it harder for the ECB to get inflation back up to a level close to 2%. In 2018, the increase in prices is expected to remain below 1.5% (see EUROPE 11926).
QE. The former Governor of the Bank of Italy reiterated that the operation for the mass buyback of mainly public securities (‘quantitative easing’ or QE) would continue until September 2018 at least and at a monthly pace of €30 billion (see EUROPE 11892). If the inflation trajectory is out of sync with its mission, the ECB stands ready to change the scope and duration of the ‘QE’ operation.
Draghi criticised claims by the Centre for European Economic Research (ZEW) that the nature of security purchases is increasingly deviating from the distribution key of the capital of the ECB, which depends on the GDP and population of the Eurozone countries.
The ECB does not favour any country over the others, he said, calling on stakeholders to examine the programme over its entire duration, compare stocks held and take account of the reinvestment period of securities that are maturing. Stressing the flexible nature of ‘QE’, which must also be adapted to the availability of the securities looked for, he said that the ECB held €18 billion more in ‘German’ securities compared to the German share of the capital of the monetary institute and observed that Greece was losing out the most, as the ECB was not buying any Greek debt or company instruments.
Concerning discussions on the end of the ‘QE’ programme, this will come at a later date. The same applies to the ECB's communication aiming to influence long-term borrowing rates (‘forward guidance’).
Observing that the differences between the positions defended by his colleagues from the Governing Council on the key interest rates were by no means “existential”, Draghi stressed that there was “little chance” that the rates would change before the end of 2018, stressing several times that they would remain unchanged well beyond the end of ‘QE’.
On Thursday, therefore, the ECB decided to keep the interval interest rates at 0.00% for the principal refinancing operations, 0.25% for the marginal loan facility and -0.40% for the deposit facility. (Original version in French by Mathieu Bion)