ECB stimulus working, maintains Draghi
He urges critics to give measures time to produce their effect, adding "if there were also structural reforms, the effect of these policies would be quicker"
Frankfurt
EUROPEAN Central Bank (ECB) president Mario Draghi has called for critics of his central bank policy to give the unprecedented stimulus measures time to work, and urged governments to help.
"Our policies work, they are effective - just give them time," the ECB head told reporters in Frankfurt on Thursday after policymakers kept interest rates unchanged at record lows and maintained asset purchases at 80 billion euros (S$122 billion) a month. "If there were also structural reforms, the effect of these policies would be quicker."
As the ECB battles to revive inflation and sustain economic growth in the 19-nation euro area, it has come under attack from German politicians who say the policy burdens savers and wrecks retirement plans. At the same time, current and former central bank heads have publicly warned that monetary policy globally may be reaching its limits, and that governments need to do more.
The bank's Governing Council discussed the political attacks on the institution and was unanimous in agreeing that the ECB is acting within its mandate, Mr Draghi said.
While agreeing that pension funds are affected by low rates, "we have a mandate to preserve price stability for the whole of the eurozone, not only for Germany", he said. "We obey the law, not the politicians, because we are independent."
The ECB chief urged European policymakers to contribute more towards boosting the economy and drag chronically low inflation out of the doldrums. "In order to reap the full benefits from our monetary policy measures, other policy areas must contribute much more decisively, both at the national and at the European levels."
The 25-member Governing Council earlier left the benchmark rate at zero and the deposit rate at minus 0.4 per cent. Officials cut rates and expanded quantitative easing (QE) at their previous meeting on March 10, when they also added corporate bonds to QE and announced a new series of long-term loans for banks.
Mr Draghi said the ECB remains ready to step up stimulus if the outlook for the euro area worsens. "It is essential to preserve an appropriate degree of monetary accommodation," he told reporters in Frankfurt. He said "the ECB will continue to do whatever is needed to meet its mandate".
Mr Draghi said that if there were unwarranted tightening in broad financial conditions, officials would use all the instruments available within their mandate. "It is essential to preserve an appropriate degree of monetary accommodation," he added.
On interest rates, "we continue to expect them to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases." Mr Draghi signalled an increased focus on the credit channel to pass on the ECB's stimulus measures to the real economy, referring to its Bank Lending Survey this week that showed lending conditions for companies continue to ease.
"Credit continues, it's pretty solid," he noted. "Together with a dramatic fall in rates and increasing volumes, this shows the measures are indeed quite effective."
The ECB plans to start buying corporate bonds in June as it unveiled more details of its purchase programme. It will start buying corporate bonds maturing between six months and 30 years. Purchases will include bonds issued by insurance companies, while excluding those sold by banks.
"Follow-through in the corporate purchase programme is essential and releasing implementation details will support credit spreads even at these record levels," said Regina Borromeo, a London-based money manager at Brandywine Global Investment Management, which oversees US$69 billion of assets.
The euro and eurozone bond yields jumped after Mr Draghi said the bank's policies were working, the economic recovery was continuing and inflation would pick up eventually. The euro flirted with US$1.14 and Germany's 10-year yield hit its highest in over a month as investors interpreted Mr Draghi's comments as slightly less dovish than expected. BLOOMBERG, AFP, REUTERS
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