Stalling recovery would be the greatest risk facing the eurozone’s economy, the head of the ECB has said, underscoring, before an important policy decision next week, the ECB’s focus on supporting growth.
The ECB is due to decide next week on whether to extend beyond March its €1.74trn bond-buying programme, the centre piece of its much-criticised stimulus policy, some say has created bond and property price bubbles and should be wound down.
Mario Draghi’s comments, in response to a question from an EU parliamentary committee about the risks to financial stability from ultra-easy monetary policy, suggest the ECB remains firmly focused on stimulating growth.
“Right now the greatest risk comes from impaired growth,” Mr Draghi said. “The greatest risk comes from the possibility the recovery doesn’t firm up and stalls.”
The ECB has pushed its benchmark interest rate below zero, bought €80bn of bonds a month and given free loans to banks and lowered borrowing costs to bring eurozone inflation back to its target of almost 2%.
Inflation is picking up, having reached 0.5% in October, and is expected to exceed 1% next year.
But Mr Draghi said ECB rate-setters would look for ways to preserve “very substantial” stimulus when they meet on December 8 and assess different options for their bond-buying programme.
“At our monetary policy meeting in December we’ll assess the various options that would allow the Governing Council to preserve the very substantial degree of monetary accommodation necessary to secure the sustained convergence of inflation towards [target],” Mr Draghi said.
After more than a year and a half of aggressive bond-buying, the ECB owns over a quarter of the debt of countries such as Germany and faces the threat of running out of paper to buy that fits the many constraints of its scheme.
Mr Draghi said the programme could be adjusted. Sources have told Reuters the ECB might buy fewer bonds from countries where scarcity is starting to emerge or buy more of each bond issue.
“We are in a position to address this problem,” he said. “The programme is sufficiently flexible that can be revisited.”
Confirming a Reuters story from last week, Mr Draghi said the ECB was “upgrading” its securities-lending programme.
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