ECB to assess need for more action next year

The European Central Bank will judge early next year whether it needs to take more action to revive the eurozone economy, president Mario Draghi said yesterday.

The ECB’s Governing Council was unanimous in its willingness to launch measures such as a government bond buying programme with new money if necessary, Mr Draghi told a news conference after the ECB kept borrowing costs at a record low.

The eurozone’s central bank has set itself a goal of expanding its balance sheet – buying assets from banks and others in return for cash in the hope it will be pushed into the economy –- by up to €800 billion, or even €1 trillion, back to early 2012 levels.

With interest rates essentially at zero that has become the policy target.

“Early next year the Governing Council will reassess the monetary stimulus achieved, the expansion of the balance sheet and the outlook for price developments,” Mr Draghi said.

“Should it become necessary to further address risks of too prolonged a period of low inflation ... this would imply altering early next year the size, pace and composition of our measures.”

Technical preparations for such a move were being stepped up, he said.

In the meantime, it will gauge the impact of ultra-low interest rates, cheap loans given to banks and buying of repackaged loans in an attempt to kick-start lending.

New forecasts by ECB staff sharply downgraded the eurozone’s growth outlook for next year to 1% from the 1.6% predicted in September.

Inflation is seen at just 0.7% in 2015, down from a September forecast of 1.1% and way below the ECB’s target of close to but below 2%.

“The risks surrounding the economic outlook for the euro area are on the downside,” Mr Draghi told reporters in the ECB’s new €1.3bn headquarters, an imposing Frankfurt skyscraper designed to show the strength of the currency.

Mr Draghi said particular attention would be paid to the oil price which has tumbled nearly 40% in the second half of the year. “We won’t tolerate prolonged deviations from price stability,” he said.

ECB vice president Vitor Constancio had previously said the bank would be better able to gauge in the first quarter of next year whether it needs to take the ultimate policy step into quantitative easing.

Mounting concerns about the eurozone economy were underlined by the US Federal Reserve’s influential vice chairman, Stanley Fischer, who said money-printing would help Europe as it had the United States.

“If the ECB moves in that direction, it will have positive effects,” Fischer, who was Draghi’s academic mentor at university, told a newspaper in Italy.

Mr Draghi faces considerable political obstacles to taking this step, chiefly from a reluctant Germany.