Draghi Defends Monetary Policy As Vital For Eurozone Recovery

The President of European Central Bank (ECB) Mario Draghi has strongly defended the stimulus policies adopted by the bank stating that they supported the eurozone economy and did not widen the gap between the wealthy and the poor.

Speaking at a think-tank event in Berlin, Draghi acknowledged the possible ill-effects of having an ultra-low interest rate policy but said it could be withdrawn only if economic conditions allowed it.

In a statement Draghi said

We would certainly prefer not to have to keep interest rates at such low levels for an excessively long time, since the unwelcome side-effects may accumulate over time. We will get out of these measures when price stability has been reached in a sustainable way without the extraordinary monetary support of today

DIWBerlin

He asserted that the low interest rates would not continue for a lengthy period as the rates would be raised once inflation targets are met. Draghi also countered criticism of ECB’s policies saying that they were effective and the Eurozone was on the right track to recovery. He called the current rate of recovery stable, although not remarkable. According to him, the policies have helped boost both consumption and investment while creating new jobs.

In his speech, Draghi defended the policy of low interests stating that though it has affected the savers of an economy, ultimately any return on investment depended on strong economic growth. Germany has one of the highest rates of savings in the world and small savers have been hit hard by the low interest rate regime.

Draghi’s statements have however not eased the speculation surrounding the ECB’s next steps. Its asset-purchase program through which it buys bonds for €80 billion per month as a stimulus measure is set to expire in March 2017. There have so far been no clues to whether the program would be tapered off or continued, although Draghi has reassured that it would not be stopped abruptly.

The uncertainly is expected to affect the euro’s position against the dollar. Since September, the euro has been declining, dropping from 1.1250 to 1.0850. Market experts expect this trend to continue. Draghi had also hinted after the meeting that markets would need to wait until December when the next policy meeting would be held to get a better understanding Accepting that there were risks attached to the current monetary strategy, namely that it could affect financial stability, Draghi said that so far there were no signs that easy credit in the Eurozone was heightening the risks.

Charlie Harrison

More articles by Charlie Harrison