European Central Bank President Mario Draghi said Thursday the ECB’s vast stimulus efforts will remain in place “as long as needed” until officials are confident that they will meet their inflation objective on a sustained basis, and played down concerns that the bank’s policies are widening the gap between rich and poor.
Mr. Draghi’s remarks, delivered at the International Monetary Fund, countered some worries in financial markets that a recent string of moderately upbeat economic data in Europe would eventually prompt the ECB to pull the plug on its EUR60 billion-a-month ($67.63 billion) bond buying program before the targeted September 2016 end date.
“While we have already seen a substantial effect of our measures on asset prices and economic confidence, what ultimately matters is that we see an equivalent effect on investment, consumption and inflation,” Mr. Draghi said. The ECB targets annual inflation near 2%. Consumer prices were flat in the eurozone last month on an annual basis, and had been negative for several months before that.
“We will implement in full our purchase program as announced and, in any case, until we see a sustained adjustment in the path of inflation,” he said.
On Wednesday, the European Union’s statistics agency reported that eurozone gross domestic product expanded 1.6% on an annualized basis during the first quarter, or 0.4% from the previous quarter. That topped growth rates in the U.S. and U.K. during the first three months of 2015, though the eurozone has lagged far behind other large economies since the global financial crisis.
“As a result of the comprehensive easing cycle from June 2014 to January 2015, both the inflation and growth outlook have improved considerably and consumer confidence is now on the rise,” Mr. Draghi said. In addition to the asset purchase program, known as quantitative easing, the ECB last year reduced official interest rates to record lows and has made four-year loans available to financial institutions at super low rates.
Still, Mr. Draghi noted that after seven years of “a debilitating sequence of crises,” the private sector remains risk averse in Europe.
“For this reason quite some time is needed before we can declare success, and our monetary policy stimulus will stay in place as long as needed for its objective to be fully achieved on a truly sustained basis,” he said.
Mr. Draghi conceded that the ECB’s stimulus has side effects on society by influencing the choice between spending and saving and by raising asset prices. “The fact that our policy has so far proven effective should not blind us to them,” he said.
“While a period of low interest rates will inevitably result in some local misallocation of resources, it does not follow that it has to threaten overall financial stability,” Mr. Draghi said, stressing the need for regulatory and supervisory policies that influence risk taking.
He also noted that expansionary monetary policies have benefited holders of financial assets by raising their value.
“But what matters more is the exact mirror effect of this rise in asset prices, which is a lower cost of equity for entrepreneurs, a lower cost of finance for investors in real projects, and a lower cost of borrowing for consumers,” he said.
