The European Central Bank will not raise interest rates before ending its mass bond-buying programme, president Mario Draghi said Thursday, quashing speculation that a mounting eurozone recovery would prompt him to change course. "We are not yet at a stage where inflation dynamics can be self-sustaining without monetary policy support," Draghi told a Frankfurt conference.
The ECB has set interest rates at historic lows and buys tens of billions of euros in bonds per month, hoping to pump cash through the financial system and boost growth, powering inflation towards its target of just below 2.0 percent. Interest rates are not set to rise until "well after" the end of the bond-buying scheme, set to continue at its present 60-billion-euros ($64 billion) per month level until December this year, Draghi has repeatedly said.
Some observers have speculated that the ECB might change tack and raise interest rates in response to increasing growth and inflation, which outpaced its target in February before falling back in March. Savers complain that low interest rates combined with rising inflation sap their cash piles, while banks are struggling to make profits as they face negative rates on their deposits - meaning they pay to park cash at the central bank.
"Our various policy instruments are deliberately chained together," Draghi said. When the bank decides to withdraw its support to the eurozone, policymakers will follow its planned sequence of first ending bond-buying before raising rates, he added.
Most members of the ECB's governing council - made up of the 19 eurozone central bank governors and the Frankfurt institution's six board members - share Draghi's view that it is too soon to hint at rate rises, minutes from their March meeting released later Thursday showed. The council rejected a proposal to remove a so-called "downward bias" - language suggesting it could lower interest rates yet further if needed - from its regular policy statements, pointing to "considerable uncertainty surrounding the economic outlook" and the future course of inflation.
But they did find that "negative scenarios, which could trigger further monetary policy action, were assessed to have become less likely, even if they could not be fully excluded." Draghi was confident a budding recovery in the 19-nation single currency area would continue, pointing to "a virtuous cycle between rising consumption, employment growth, and labour income," increasing spending combined with falling indebtedness, and broad-based improvement across the eurozone. "Despite these signs of progress, it is too early to declare success," he said. Draghi also hit back at critics of low interest rates, calling them "powerful in terms of easing financial conditions" while "the negative side effects have so far been limited".
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