ECB patient and gradual with rate hikes, Draghi says
Send a link to a friend
[June 19, 2018]
SINTRA, Portugal (Reuters) - 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
The ECB decided last week to end its 2.6 trillion euro bond purchase
program 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
"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
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 <EUR=> 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, even as it has unleashed an unprecedented
cocktail of unconventional measures to rekindle price growth.
[to top of second column]
President of the European Central Bank Mario Draghi listens during
the news conference following the meeting of the Governing Council
of the European Central Bank in Riga, Latvia June 14, 2018. REUTERS/Ints
While prices are now on the rise, in part due to higher oil prices, and the ECB
sees inflation near its target by 2020, Draghi said uncertainly prevails,
clouding the outlook for price growth.
But a key measure of long term inflation expectations <EUIL5YF5Y=R> is hovering
near 1.75 percent, within striking distance of the ECB's target, suggesting
increased market confidence in the bank's willingness to push up inflation.
"What is key is that inflation expectations remain well anchored," Draghi said.
"But uncertainty arising from economic developments lingers throughout the
various stages of this process."
He added that downside risks include the threat of increased global
protectionism, rising oil prices and the possibility of persistent heightened
financial market volatility.
While wages are on the rise, this would not automatically translate into higher
inflation, Draghi said, questioning the traditional relationship between prices
"Even if wages continue to rise as we expect, we cannot exclude that structural
factors beyond the central bank's control might impede the transmission of wages
into consumer prices," Draghi said.
(Reporting By Francesco Canepa and Balazs Koranyi; Editing by Catherine Evans)
[© 2018 Thomson Reuters. All rights
Copyright 2018 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content.