Draghi Says ECB Will Still Be Short of Inflation Goal by 2020

Mario Draghi stopped short of declaring that the European Central Bank will meet its inflation goal in 2020, signaling that the euro-area economy isn’t yet strong enough to warrant weaning off monetary stimulus.

The ECB president unveiled updated economic projections that showed stronger growth over the next three years but only slowly improving consumer-price gains. Inflation will average 1.7 percent in 2020, below the goal of just under 2 percent. Policy makers earlier kept interest rates and their quantitative-easing settings unchanged.

The Governing Council’s discussion “reflected the increasing confidence that we have in the convergence of inflation towards a self-sustained path in the medium term,” Draghi said in a press conference on Thursday, adding that an “ample degree” of stimulus is still needed. “Domestic price pressures remain muted overall and have yet to show convincing signs of a sustained upward trend.”

The ECB chief’s caution comes amid a spate of central-bank decisions in the past 24 hours that signaled tighter global monetary policies ahead. The U.S. Federal Reserve announced its third interest-rate increase of the year, China unexpectedly edged borrowing costs higher, and Norway’s central bank signaled that it may start raising interest rates earlier than previously.

The Swiss National Bank predicted inflation will exceed its mandate in late 2020, though said it won’t rush to raise rates. The Bank of England, which increased rates last month for the first time in a decade, kept policy on hold in London.

Draghi said the strong cyclical momentum could lead to further positive growth surprises in near term. Downside risks were mostly related global factors, he said.

The Governing Council will halve asset purchases to 30 billion euros ($35 billion) a month starting in January and continue for at least nine months until the end of September. It promised to increase or extend buying if the outlook for inflation worsens, and expects to keep interest rates unchanged until well past the end of net asset purchases. It will also reinvest the proceeds from maturing debt holdings for as long as necessary.
Source: Bloomberg

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