Draghi Says Too Early to Declare ECB Success as Growth Firms

stimulusThe President of the European Central Bank, Mario Draghi
  • Draghi Says Too Early to Declare ECB Success as Growth Firms

Mario Draghi said the European Central Bank’s stimulus hasn’t finished the job yet, even as he acknowledged that the region’s economy is getting stronger.

“The economic recovery has evolved from being fragile and uneven into a firming, broad-based upswing,” the ECB president said at the opening of a hearing at the Dutch Parliament in The Hague on Wednesday. “Nevertheless, it is too early to declare success.”

ECB policy makers are pondering whether and how to communicate a gradual removal of stimulus amid a steadily strengthening economy that has so far showed little signs of generating faster price growth. While Executive Board members Yves Mersch said on Monday that the central bank was “within reach” of describing risks to the recovery as “broadly balanced” — wording that could signal the first step toward unwinding stimulus — Draghi struck a somewhat more cautious note.

“Incoming data confirm that the cyclical recovery of the euro area economy is becoming increasingly solid and that downside risks have further diminished,” he said. However, “underlying inflation pressures continue to remain subdued and have yet to show a convincing upward trend.”

Labor Slack

The ECB president singled out wages as one key component of inflation that hasn’t been responding to the reduction of spare capacity in the economy. Research by central bank economists shows that, despite falling unemployment, labor-market slack has remained high since the start of the upswing, suggesting that a significant pickup in pay could still be some way off.

Responding to questions from Dutch lawmakers, Draghi said that changes to the ECB’s policy guidance and rates will only come when inflation is solid enough to continue without the support of monetary stimulus.

“Our monetary policy was successful. The question is, ‘Is it time to exit or time to think about exit or not?’ This time hasn’t come yet,” he said. “This will happen when inflation” is durable, “self-sustained, and it’s for the whole of the euro area.”

The ECB president also defended the central bank against the charge that they delayed reforms in weaker euro-area countries and worsened economic disparity in the region.

“What is the best measure we had of the decrease in inequality? To create employment, to create jobs,” he told lawmakers, repeating that 4.5 millions jobs have been created since the start of ECB unconventional policies three years ago.

The ECB’s next policy-setting meeting is scheduled for June 8 in Tallinn, Estonia, when the Governing Council will decide whether to send a signal about when and how it may start winding down the stimulus.

About the Author

Samed Olukoya
CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York based Talk Markets and Investing.com, with over a decade long experience in the global financial market. Contact Samed on Twitter: @sameolukoya; Email: [email protected]; Tel: +2347065163489.

Be the first to comment on "Draghi Says Too Early to Declare ECB Success as Growth Firms"

Leave a comment

Your email address will not be published.