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ECB to Maintain Monetary Policy

ECB to Maintain Monetary PolicyECB to Maintain Monetary Policy

Mario Draghi made clear on Thursday that the European Central Bank will not tighten monetary policy sooner than planned to address inflationary pressure.

“We have not yet seen sufficient evidence to materially alter our assessment of the inflation outlook,” the President of the ECB said, NewEurope reported.

In April, the ECB has slowed the pace of the bond-buying program, and some governors are urging for further measures that will signal a steady rebound of interest rates, which are currently at historically low levels. In response, Mario Draghi responded on Thursday that interest rates would “remain at present or lower levels for an extended period.”

In his rationale, Draghi explained that there need to be indications that inflation will be near 2% even without the ECB’s bond-buying program. In this equation, the key is “demand”. Clearly, Draghi sides with the view that recent inflationary uptick is more related to volatile food and energy prices than higher consumption.

His rationale finds opposition from prominent national governors. Bundesbank President Jens Weidmann told Die Zeit on Wednesday that it is time to ease on the fiscal stimulus program, which should end within a year. Following Mario Draghi’s statements on Thursday, Weidmann reiterated that the ECB should “consider monetary policy normalization”.

Germany and the Netherlands feel the political pressure of low-interest rates from savers and pension funds.

Meanwhile, the euro hit a three-week low Friday morning after Draghi offered a gloomy outlook on the future of the eurozone.

Equity markets with leading European indices crashed by more than 0.5% as Draghi revealed he had no plans to increase interest rates any time soon.

The ECB boss said there was no need to change the bank’s current policy part due to the lack of inflation evidence.

The euro slumped by 0.3% against the dollar—its lowest level since March 14.

Earlier on Thursday, euro trading was as high as $1.068, but started tumbling after Draghi began his speech on monetary policy in Frankfurt.

He said: “Before making any alterations to the components of our stance—interest rates, asset purchases and forward guidance—we still need to build sufficient confidence that inflation will indeed converge to our aim over a medium-term horizon, and will remain there even in less supportive monetary policy conditions.”

The ECB boss said the current monetary policy had been pivotal to eurozone economic resilience.

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