Draghi says inflation rate still hasn't yet reached ECB target

[FRANKFURT] The euro-area economy is seeing the most broad-based expansion in its two-decade history, but price growth is still far from where the European Central Bank would like to see it.

"The economic expansion remains solid and broad-based across countries and sectors in the euro area, mainly supported by domestic demand," President Mario Draghi told members of the European Parliament in Brussels on Monday.

"Despite the firm economic recovery, inflation dynamics have yet to show convincing signs of a self-sustained upward trend."

The ECB president's comments reiterate his stance that any changes to the ultra-accommodative monetary policy must occur gradually. They also echo his remarks from the last interest-rate decision on Oct 26.

While the region's sweeping economic improvements in the last year have already inspired officials to pare back some support from January, Mr Draghi noted that underlying inflation pressures are "still subdued as labour market slack remains significant".

For this reason, Mr Draghi said the ECB's recalibration of its bond-buying program - which will see monthly asset purchases reduced to 30 billion euros (S$48 billion) from 60 billion euros next year - should be seen as a sign of "growing confidence in the gradual convergence of inflation rates" with the ECB's aim.

Overall, low interest rates and quantitative easing will mean that policy will remain accommodative, he said.

"These measures will preserve the current financing conditions and ensure the ample degree of monetary stimulus that is still necessary for a sustained return of inflation rates towards levels that are below, but close to, 2 per cent."

The next ECB policy decision is due on Dec 14.

BLOOMBERG