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Tuesday, July 10, 2012
ECB president Mario Draghi has signalled that policymakers may be open to another interest rate cut if the economic outlook warrants it.
"We have to look at what the situation is, the data and the developments, and then we will make up our minds on the governing council what to do," he told politicians in Brussels when asked if the central bank could cut rates again. While the ECB never pre-commits, it will "do everything to maintain price stability — from both sides — in the euro area".
He said EU states were increasingly making the kind of changes necessary to bring their economies into line with the eurozone’s need to prevent major imbalances and generate sustainable growth.
"For example, the Irish authorities have maintained a strong track record for maintaining reform momentum throughout their programme. They have also taken important steps towards the restoring the stability of the financial system."
Addressing the European Parliament’s economic and monetary affairs committee, the ECB president agreed with Fine Gael MEP Gay Mitchell that banks were not passing on the interest rate cuts to mortgage holders but pointed to the difficulty some financial institutions have with their mortgage rate arrangements.
The ECB last week cut its main interest rates by 25 basis points, taking the benchmark to a record low of 0.75% and the deposit rate to zero. Policymakers next decide on rates on Aug 2. With the debt crisis threatening to tip the 17-nation euro economy into recession, some economists say the ECB may have to resort to unorthodox methods to stimulate growth. ECB staff are "searching for actions that could attenuate the current crisis", as long as they do not breach the central bank’s inflation-fighting mandate, said Mr Draghi.
He said last week’s rate cut "took account of further dampening of inflationary pressures, as some of the previously identified downside risks to economic activity materialised",
He said it was "essential" that eurozone governments gave up some sovereignty in order to establish a fiscal union. Common euro bonds "come at the end of this process", he said.
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