Interest rates to remain low – Draghi

Comment on this story

Stefan Riecher and Jeff Black Frankfurt

European Central Bank (ECB) president Mario Draghi reiterated yesterday that he would keep interest rates low as officials try to revive the euro zone economy with a new round of emergency measures.

“The key ECB interest rates will remain at present levels for an extended period of time,” Draghi said at a press conference in Frankfurt after policymakers left borrowing costs unchanged.

Yesterday’s meeting was the first after the ECB unveiled a range of measures last month to fight the threat of deflation in the euro area. The package includes long-term loans to banks under the condition they lend the money on to households and companies as well as preparatory work for an ECB asset purchase programme.

Draghi’s press conference was overshadowed by a US jobs report that painted a picture of a brightening labour market in the largest economy. The euro dropped as low as $1.3596 (R14.5552) during the press conference from $1.3664 earlier in the day.

Yesterday the ECB left the main refinancing rate at a record low of 0.15 percent, as predicted by all 54 economists surveyed. The deposit rate stayed at minus 0.1 percent.

Last month’s announcement of deflation fighting measures left many questions and Draghi gave some details yesterday on the new targeted-loan programme. He estimated that banks could take up as much as e1 trillion (R14.6 trillion) in the two initial tenders and a series of quarterly auctions.

“I’m confident banks will quickly understand that even though it’s complicated, it’s also quite attractive,” he said.

Still, Draghi provided no precise definition of how much lending banks needed to generate before they could keep the loans for the four-year life span of the programme. Nor did he flesh out the ECB’s thinking about purchases of asset-backed securities as a means to get lending flowing again.

The ECB’s 24-member governing council is trying to stop inflation falling too low in an economy still struggling to recover from a debt crisis that at one point threatened to blow the euro apart. Inflation in the 18-nation bloc held at 0.5 percent in June, about a quarter of the ECB’s target of just under 2 percent. The rate has been below 1 percent every month since October last year.

“We are strongly determined to safeguard the firm anchoring of inflation expectation over the medium term,” Draghi said. He also repeated that the ECB stood ready to embark on broad-based asset purchases if necessary.

Draghi said that the ECB would move next year from a monthly cycle of announcing interest rate decisions and would instead announce its decisions every six weeks.

In addition, the ECB planned to start publishing minutes next year, falling into line with the US Federal Reserve and the Bank of Japan. – Bloomberg

sign up

Comment Guidelines

  1. Please read our comment guidelines.
  2. Login and register, if you haven’ t already.
  3. Write your comment in the block below and click (Post As)
  4. Has a comment offended you? Hover your mouse over the comment and wait until a small triangle appears on the right-hand side. Click triangle () and select "Flag as inappropriate". Our moderators will take action if need be.

  5. Verified email addresses: All users on Independent Media news sites are now required to have a verified email address before being allowed to comment on articles. You are only required to verify your email address once to have full access to commenting on articles. For more information please read our comment guidelines