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ECB Convinced QE Should Stay
World Economy

ECB Convinced QE Should Stay

The European Central Bank is “firmly convinced” it must maintain its massive interventions in the eurozone economy to avoid undermining a gathering recovery, bank president Mario Draghi said late Monday.
“We remain firmly convinced that an extraordinary amount of monetary policy support, including through our forward guidance, is still necessary,” Draghi said at a regular hearing with European Parliament lawmakers in Brussels, AFP reported.
The ECB has set interest rates at historic lows, offered cheap loans to banks, and buys tens of billions of euros in bonds each month in a bid to pump cash through the financial system and into the real economy.
Its policies are aimed at easing access to credit for investment and consumption for firms and households in the 19-nation single currency area—and to drive inflation upwards towards its goal of just below 2%, believed to be most favorable for growth.
Draghi repeated his view that “the fact domestic consumption and investment are the main engines driving the recovery makes it more robust and resilient to downside risks”.
But he added that “domestic cost pressures, notably from wages, are still insufficient to support a durable and self-sustaining convergence of inflation” towards the ECB’s target.
The mounting eurozone recovery and a spike in inflation earlier this year have strengthened voices on the ECB’s governing council calling for an end to bond-buying.
The bank’s monetary stimulus and record-low interest rates have been a major bone of contention, particularly in Germany, where the economy is far stronger than in the eurozone as a whole and low interest rates are hitting savers.
Speaking in Berlin, Jens Weidmann, the president of the Bundesbank and a hawk on the ECB governing council, said the bank’s loose monetary policy was “still appropriate in principle”.
But Weidmann said the eurozone’s recovery made it “legitimate to ask when the governing council should consider monetary policy normalization”.
In a question-and-answer session with MEPs, Draghi said that with so many countries and sectors experiencing economic improvement, a dispersion index measuring the broadness of eurozone growth had reached its best level since 1997—“way, way before the crisis”.
Observers are looking to next week’s council meeting for hints that the end is on the way, although most believe any concrete action to wind down the program is still months away at least.
In recent public appearances, policymakers have followed Draghi’s lead in tempering such expectations, pointing to global risks to the recovery and weak core, or underlying inflation excluding volatile items like food and energy prices.

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