Mario Draghi said the European Central Bank is watching the euro’s gains as policy makers edge toward settling the future of their bond-buying program.
“The recent volatility in the exchange rate represents a source of uncertainty which requires monitoring” for its impact on price stability, the ECB president told reporters in Frankfurt on Thursday. He said the decisions on QE are “many, complex, and always naturally one thinks about risks that may materialize in the coming weeks or months, so that is the caution behind not specifying a date — probably the bulk of these decisions will be taken in October.”
The single currency rose as much as 1.2 percent as Draghi spoke to break above $1.20. It was up 0.9 percent at $1.2025 at 3:23 p.m. Frankfurt time.
The signal that a decision on bond purchases is likely next month “makes it difficult for the ECB president to talk down the euro,” said Nick Kounis, an economist at ABN Amro in Amsterdam. “The currency market is telling Draghi that talk is cheap and it is putting more weight on the upcoming QE actions.”
The euro’s surge — more than 14 percent against the dollar this year and almost 6 percent on a trade-weighted basis — was reflected in a downgrade to the ECB’s inflation outlook even as Draghi said economic growth remains solid. That highlights the difficulty policy makers face as they debate the future of their QE program — which has already topped 2 trillion euros ($2.4 trillion) and is scheduled to continue at a monthly pace of 60 billion euros until the end of this year.
ECB staff now see inflation at 1.2 percent in 2018 and 1.5 percent in 2019, well below the goal of just below 2 percent.
Still, Draghi said that there was “broad satisfaction” within the Governing Council that consumer prices will eventually converge with expectations for stronger growth.
“Financial conditions have unquestionably tightened in the euro area, but they remain broadly supportive of the non-financial companies and enterprises,” he said. “The economic expansion, which accelerated more than expected in the first half of 2017, continues to be solid and broad-based across countries and sectors.”
The ECB chief described the discussion on the path of QE as “very, very preliminary” and that the Governing Council considered the “trade-offs” between various scenarios related to the pace and duration of purchases. Policy makers want to see the work of ECB’s technical committees before deciding, he said.
ECB MONETARY POLICY SEPT. 7 DECISION
Main refinancing rate 0 percent
Deposit rate minus 0.4 percent
Marginal rate 0.25 percent
Asset-purchase target 60 billion euros a month
He said officials did not discuss the ECB’s self-imposed limits on the proportion of bond issues it can buy, not did they talk much about the risk the central bank will run out of debt to buy.
“We haven’t discussed really the scarcity issue because so far, he said. “We’ve consistently shown that we’ve been able to cope with this issue quite successfully.”
The ECB chief also reiterated that interest rates will be kept low for an extended period, and said officials did not discuss whether they could be raised before net asset purchases end.