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No ECB interest rate rise before end of bond-buying: Draghi

Thursday, April 6, 2017 - 16:48

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The European Central Bank will not raise interest rates before ending its mass bond-buying programme, president Mario Draghi said Thursday, quashing speculation that a mounting eurozone recovery would prompt him to change course.

[Frankfurt] The European Central Bank will not raise interest rates before ending its mass bond-buying programme, president Mario Draghi said Thursday, quashing speculation that a mounting eurozone recovery would prompt him to change course.

"We are not yet at a stage where inflation dynamics can be self-sustaining without monetary policy support," Mr Draghi told a Frankfurt conference.

The ECB has set interest rates at historic lows and buys tens of billions of euros in bonds per month, hoping to pump cash through the financial system and boost growth, powering inflation towards its target of just below 2.0 per cent.

Interest rates are not set to rise until "well after" the end of the bond-buying scheme, set to continue at its present 60-billion-euros (S$89.5 billion) per month level until December this year, Mr Draghi has repeatedly said.

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Some observers have speculated that the ECB might change tack and raise interest rates in response to increasing growth and inflation, which outpaced its target in February before falling back in March.

Savers complain that low interest rates combined with rising inflation sap their cash piles, while banks are struggling to make profits as they face negative rates on their deposits - meaning they pay to park cash at the central bank.

"Our various policy instruments are deliberately chained together," Mr Draghi said.

When the bank decides to withdraw its support to the eurozone, policymakers will follow its planned sequence of first ending bond-buying before raising rates, he went on.

The central bank chief said he was confident a budding recovery in the 19-nation single currency area would continue, pointing to "a virtuous cycle between rising consumption, employment growth, and labour income," increasing spending combined with falling indebtedness, and broad-based improvement across the eurozone.

But "despite these signs of progress, it is too early to declare success," he went on.

"Geo-political risks" continue to threaten the recovery, Mr Draghi said, while inflation is still dependent on the central bank's massive interventions in the economy.

Mr Draghi also hit back at critics of low interest rates, calling them "powerful in terms of easing financial conditions" while "the negative side effects have so far been limited".

REUTERS

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