Brussels - The European Central Bank (ECB) was ready to take action next month to boost the euro zone economy if price inflation forecasts warranted it, bank president Mario Draghi said yesterday, cautioning countries against pressuring the bank into action.
“The governing council is comfortable with acting next time but before [doing so] we want to see the staff projections that will come out in early June,” Draghi said after the ECB kept its interest rates unchanged at 0.25 percent. He also flagged concerns about the strength of the euro, which hit a two-and-a-half-year high against the dollar as he spoke.
He repeated the ECB’s commitment to keeping monetary policy loose for an extended time. “We will maintain a high degree of monetary accommodation and act swiftly if required with further monetary policy easing,” Draghi said, adding that all options had been on the table at the meeting that decided to hold rates.
But he also took a swipe at institutions and countries that have been calling for the ECB to take more action to boost the economy and counter deflationary pressures. “We are independent, so people should be aware that if this might be seen as a threat to our independence it could cause long-term damage to our credibility.”
French politicians, the International Monetary Fund and others have become increasingly vocal about the need for steps to curb the growing strength of the euro.
The euro, trading at $1.38, has gained more than 14 percent over the US currency since a July 2012 low.
Draghi said the bank was on alert to the perils of euro strength. “Strengthening of the exchange rate in the context of low inflation is cause for serious concern in the view of the governing council. It is unanimous in its commitment to using also unconventional instruments within its mandate.”
The ECB governing council met in Brussels against the backdrop of a Franco-German spat over ECB policy towards the euro’s strength – one factor Draghi has identified as a potential trigger for policy action.
Guntram Wolff, who heads Brussels think tank Bruegel, criticised the ECB for dithering and urged it to start buying bonds from the euro zone’s rescue fund, the European Stability Mechanism.
Financial markets have embraced the euro as Europe’s economy has improved and with the debt crisis easing.
Data have since shown euro zone inflation ticked up to 0.7 percent last month from 0.5 percent in March, relieving pressure on the ECB to act this month. But a downward revision in the bank’s staff inflation forecasts could trigger action next month. – Reuters