“If we decide (on Dec 3) that the current trajectory of our policy is not sufficient to achieve our objective, we will do what we must to raise inflation as quickly as possible”, he told a conference in Frankfurt.
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Draghi’s comments underline the ECB’s concern that the rate of inflation in the 19-nation euro area, now 0.1%, is slipping further from their target, depressed by a high degree of slack in the economy and slumping oil prices.
A cut to the deposit rate looks likely at this stage, as does a few form of extension to its quantitative easing program, either through additional purchases, a broader range of instruments or its lifetime.
Meanwhile, the dollar rose 0.4 per cent against a basket of currencies, resuming its march upward over the past month. This is considered a sign of a healthy jobs market and economists claim there is little room for the number to drop as the market reaches full employment.
“In a speech, Draghi said the bank would not hesitate” to expand its stimulus program at its next meeting in early December if needed to support the economic recovery.
“I see no reason to talk down the economic outlook and paint a gloomy picture”, Weidmann said in a speech at the same event as Draghi.
Investors appear to have already priced in, or anticipated, more stimulus December 3. The contract fell 23 cents to settle at $41.72 a barrel in NY on Thursday.
He added that the interest rate on the deposit facility “can empower the transmission” of asset purchases, “not least by increasing the velocity of circulation of bank reserves”.
Draghi said core inflation, which excludes energy and food, is also a signal of too-weak price pressures.
The EUR/USD exchange rate is now trading between 1.0662 and 1.0728. While that’s the highest reading in more than two years, it’s still barely half the goal for the headline rate.
Such a trend was potentially “worrisome”, especially as the rebound in core inflation was also stalling and the pass-through of low commodity prices to core inflation was fast and pronounced. Even more hawkish comments from Fed officials today may not give the pair the push it needs to move back towards 1.0450-1.05, this year’s lows.
It finished the day with a gain of 0.3 percent, while the Paris CAC 40 dipped 0.08 percent compared with Thursday’s close.
It is now slated to run until September next year – with the European Central Bank buying up to €60bn of bonds per month, using the proceeds to bolster money supply in the economy.
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Most major banks have stuck firmly to the view that the euro will fall toward parity with the dollar in the months ahead as the Federal Reserve begins to lift interest rates while the ECB takes the opposite course.
