“Countries that have fiscal space should use it”, he said.
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Draghi’s urgings have so far largely been ignored by governments, led by Germany, that have tended to focus instead on reducing deficits. “The transmission of monetary policy has never worked better than it does today”, he told a news conference.
The ECB set the tone for the day, leaving its monetary policy unchanged at its September meeting, as expected, and noting that members expect rates to remain at their present level for an “extended period”.
Along those same lines, President Draghi conceded that negative interest rates were limiting the ECB’s ability to conduct full-blown QE.
While the shaky outlook in Europe and the United States was not enough to spur the European Central Bank into action, it may prove a positive for riskier investments like the Chinese and other emerging markets if the end result is to stave off another rise in U.S. Federal Reserve interest rates.
Draghi stated that there had been no discussion of any extension to the bond-purchase programme and that they are working on a smooth implementation of policies. There are concerns that the program may run out of high-quality government and corporate bonds to buy. The central bank faces stubbornly low annual inflation of only 0.2 percent despite pumping 1 trillion euros ($1.1 trillion) in newly printed money into the banking system through bond purchases since March, 2015.
He reiterated that the bank will leave its quantitative easing (QE) programme running until March 2017 – or until it sees a “sustained adjustment in the path of inflation consistent with its inflation aim” – but said the governing council had not discussed whether to extend QE.
The ECB kept its deposit rate at -0.4 per cent, charging banks for parking cash overnight, and held the main refinancing rate, which determines the cost of credit in the economy, unchanged at 0.00 per cent.
Some analysts, however, think the bank is more likely to postpone action to its October or December meetings, or not act at all.
Just ahead of markets closing in Europe on Thursday, the euro rose 0.67 per cent to 1.134 against the dollar.
Mario Draghi said on Thursday that he anticipates the single currency zone’s economic recovery to proceed at a “moderate but steady pace”. “Ultimately we’ve got to be patient”, Draghi said.
Shares in Frankfurt fell 0.7 per cent, while Paris lost 0.3 per cent.
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Facing anaemic growth and inflation, the ECB is buying 1.74 trillion euros worth of bonds, holding rates deep in negative territory and giving banks free loans, hoping to end the bloc’s almost decade-long economic malaise with an infusion of cheap credit. The central bank has missed its target of inflation just under 2 per cent for over three years and updated projections on Thursday showed it doesn’t foresee reaching the goal before late 2018.
