ECB patient and gradual with rate hikes

- REUTERS, SINTRA (Portugal)

Jun 20, 2018-

The European Central Bank will be patient in tightening policy further, ECB President Mario Draghi said on Tuesday, adding that market pricings for its first post-crisis rate hike were consistent with its aim to move gradually.

The ECB decided last week to end its 2.6 trillion euro bond purchase programme by the close of the year but said interest rates would stay unchanged at least through next summer, a wording that pushed back rate hike expectations by three months to September 2019.

But uncertainty is rising as the threat of a global trade war looms, while a rise in inflation is still far from certain as higher wages may not translate into faster price growth, Draghi told the ECB’s hallmark policy forum in Sintra, Portugal.

“We will remain patient in determining the timing of the first rate rise and will take a gradual approach to adjusting policy thereafter,” Draghi said.

“The path of very short-term interest rates that is implicit in the term structure of today’s money market interest rates broadly reflects these principles.”

This stood in contrast with a brutal market reaction to Draghi’s words in Sintra a year earlier, when the mere hint of a reduction in monetary stimulus caused the euro to shoot up against the dollar.

This year Draghi managed the rare feat of talking down the euro and bond yields while announcing a tightening of monetary policy at his press conference on June 14.

While the ECB’s guidance for steady rates ‘through’ next summer is intentionally vague, policymaker said the wording means a decision only after the summer and not during one of the summer meetings.

“What we’re trying to convey is that ‘through the summer’ means the end of the summer,” Irish central bank chief Philip Lane told CNBC. “It’s way too early to have a discussion on what comes after that.”

The ECB targets inflation at just below 2 percent but has undershot this target for over five years.

Published: 20-06-2018 08:23

Next Story

User's Feedback

Click here for your comments

Comment via Facebook

Don't have facebook account? Use this form to comment