Draghi sees no need to resume bond-buying scheme

30 January, 2019 12:00 AM printer

FRANKFURT AM MAIN: European Central Bank chief Mario Draghi on Monday said there was no need to consider restarting a recently ended bond-buying stimulus scheme “this year”, even as risks to the eurozone economy mount.

Addressing European Parliament lawmakers in Brussels, Draghi said the bank had tools at the ready to help the euro region weather the worsening outlook, but that the more drastic option of resuming massive monthly bond purchases was not immediately on the cards, reports AFP.

“Of course if things go very wrong, we can still resume other instruments in our toolbox,” Draghi said, referring to restarting the so-called “quantitative easing” (QE) programme.

But “at this point in time we don’t see such a contingency as likely to materialise, certainly not this year,” he added.

The ECB last month ended its QE scheme after nearly four years, having bought over 2.6 trillion euros ($3.0 trillion) of government and corporate bonds in a bid to pump cash through the financial system to stoke growth and inflation.

While the scheme has succeeded in warding off deflation — a harmful spiral of falling prices and activity — price growth has fallen back from the ECB’s target of just below 2.0 percent.

Looking ahead, indicators and forecasts point to weaker economic expansion in the eurozone amid growing fears of a global slowdown.

Despite ending QE, Draghi last week said the ECB still had “not run out of” instruments to bolster eurozone growth, including through record-low interest rates and reinvestments from maturing bonds that will help keep borrowing costs low.

Pictet Wealth Management analyst Frederik Ducrozet said by ruling out any stronger action, Draghi wanted to signal that the Frankfurt institution was not overly worried — for now.

“In a way, they have no choice but to send a positive message while they wait for the next set of data,” he told AFP.

The ECB is due to unveil its latest growth and inflation forecasts in March.

The IMF last week predicted growth of 1.6 percent this year, compared with 1.8 percent in 2018 and 2.3 percent the previous year.

 


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