Bold ECB action expected as Draghi throws door to QE wide open
(Reuters) – European Central Bank President Mario Draghi threw the door wide open on Friday for more drastic measures to prevent the euro zone from sliding into deflation, promising to use whatever means necessary as China also acted to boost its sagging economic growth.
With many fearing the euro zone could be heading for a Japanese-style lost decade of deflation and recession, Draghi’s remarks were reminiscent of when he pulled the bloc back from possible disintegration in 2012 by promising to do “whatever it takes” to back the common currency.
Painting a bleak picture of the state of the 18 countries in the euro bloc, Draghi stressed that “excessively low” inflation had to be raised quickly.
In a blunt message, he said there was now no sign of improvement in the months ahead and the ECB would pump more money into the euro bloc if its current measures fell short.
“We will do what we must to raise inflation and inflation expectations as fast as possible,” he told an audience of bankers in Frankfurt.
“If … our policy is not effective enough to achieve this, or further risks to the inflation outlook materialise, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases,” he said.
Annual euro zone inflation was 0.4 percent in October, far short of the ECB’s medium-term target of just below two percent.
Draghi’s comments, which many read as inching very close to possible buying of government bonds, received a warm reception from Italian finance minister Pier Carlo Padoan, who said ECB action was welcome to revive economic growth in the euro zone.
The ECB said on Friday it had started buying asset-backed securities. Along with purchases of covered bonds, a secure form of debt often backed by property, it is trying to encourage banks to lend and revive the economy.
