- European Central Bank policy of bond purchases.
- Headline inflation is likely to decline before rising again towards the end of the year.
- The Governing Council reiterated the need for a highly accommodative stance of monetary policy.
FRANKFURT: The European Central Bank approved a fresh stimulus package as expected on Thursday, cutting interest rates and approving a new round of bond purchases to prop up euro zone growth and halt a worrisome drop in inflation expectations.
Following are highlights of ECB President Mario Draghi’s comments at a press conference after the bank’s policy meeting.
ON THE ECB’S BASELINE SCENARIO
“… This baseline scenario is also relatively favourable. Because it doesn’t contain the case of a hard Brexit, for example, the probability of which has gone up over recent time.
“And it doesn’t contain some of the trade measures, trade escalation, at least, some of the trade escalation that has taken place since August. So in this – with this relatively favourable baseline scenario, there was a downgrade in inflation and inflation expectations. And so that is over the whole horizon. And that is what prompted the measures we have taken.”
“In view of the weakening economic outlook and the continued prominence of downside risks, governments with fiscal space should act in an effective and timely manner.”
AMPLE STIMULUS NEEDED
“An ample degree of monetary accommodation is still necessary for the continued sustained convergence of inflation to levels that are below but close to 2% over the medium term.”
“While labour cost pressures strengthened and broadened…, their pass-through to inflation is taking longer than previously anticipated.”
MEDIUM TERM INFLATION TO INCREASE
“Over the medium term, underlying inflation is expected to increase, supported by our monetary policy measures, the ongoing economic expansion, and robust wage growth.”
HEADLINE INFLATION DECLINE
“Headline inflation is likely to decline before rising again towards the end of the year.”
UNDERLYING INFLATION MUTED
“Measures of underlying inflation remained generally muted and indicators of inflation expectations stand at low levels.”
DOWNSIDE GROWTH RISKS
“The risks surrounding the euro area growth outlook remain tilted to the downside. These risks mainly pertain to the prolonged presence of uncertainties related to geopolitical factors, the rising threat of protectionism, and vulnerabilities in emerging markets.”
MODERATE Q3 GROWTH
“Incoming economic data and survey information continue to point to moderate but positive growth in the third quarter of this year.”
“Today’s decisions were taken in response to the continued shortfall of inflation with respect to our aim.”
MORE PROTRACTED WEAKNESS
“Incoming information since the last Governing Council meeting indicates a more protracted weakness of the euro area economy, the persistence of prominent downside risks, and muted inflationary pressures.”
STANDS READY TO ACT
“The Governing Council reiterated the need for a highly accommodative stance of monetary policy for a prolonged period of time and continues to stand ready to adjust all of its instruments as appropriate to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry.”
“We decided to introduce a two-tier system for reserve remuneration in which part of banks’ holdings of excess liquidity will be exempt from the negative deposit facility rate to support the bank-based transmission of monetary policy.”
“For banks whose eligible net lending exceeds a benchmark, the rate applied in TLTRO III operations will be lower, and can be as low as the average interest rate on the deposit facility prevailing over the life of the operation.”
“We expect the net asset purchases to run for as long as necessary to reinforce the accommodative impact of our policy rates, and to end shortly before we start raising the key ECB interest rates.”
“We have conducted a thorough assessment of the economic and inflation outlook.”