The risk for the euro area is that its recovery might prove too fragile to cope with any downturn in trade and investment as a effect of the Brexit vote.
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Consumer prices in the euro area were projected to increase by an annual average 0.3 percent this year and then pick up by 1.2 percent in 2017 and 1.5 percent in 2018.
“Large uncertainties prevail. These figures depend on how long the stretch of time is going to be for these negotiations to be completed and to [achieve] a certain outlook, which we don’t have with us today”.
However, on Thursday he said that the forecasts should be treated with a “grain of caution” because it will depend on negotiations between Britain and the European Union and the outcome of those talks.
Several ECB officials have already urged traders “to be patient” about the bank’s policy, as stimulus measures are already “quite significant”. For instance, without the March package and the nine-month extension that we expect for September, we estimate flat 2017 euro area growth due to Brexit.
Jennifer McKeown, senior European economist at Capital Economics, said: “Admittedly, the ECB has only recently implemented extra asset purchases and bank lending operations and the recent modest weakening of the euro has removed some of the pressure to do more”.
Ahmed said the consensus view is that the ECB’s monetary policy “is likely to remain easy” for the foreseeable future.
But such generosity in monetary policy is bumping up against limits.
“We wouldn’t consider it a risk but it has to be addressed”. After many years of QE, the economy is not coming back with a clear comparison of a steady United States economy.
Draghi said it was up to the EU’s executive Commission to apply the rules.
As Draghi argued, it is still too soon to make a definite plan following the Brexit vote.
“It appears that the European Central Bank, like the Bank of England, is now in wait and see mode to assess the impact of the UK’s decision to leave the EU”, said M&G Investment’s Anthony Doyle, adding that uncertainty around Brexit would act as a drag on growth for the Eurozone.
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Draghi added that a public backstop for banks – whereby countries would have to pay to prop up their faltering lenders – might help manage the problem of high levels of non-performing loans (NPLs) in the Italian banking sector.
