Mario Draghi, European Central Bank president, said Thursday that the governing council will decide early in January whether to launch measures such as sovereign bond-buying which is called quantitative easing (QE) while commenting that the fall in oil prices may make raising inflation from its November annual rate of 0.3% difficult to achieve. He also announced cuts in forecasts.
At today’s meeting in Frankfurt, the governing council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.05%, 0.30% and -0.20% respectively.
"Early next year the governing council will reassess the monetary stimulus achieved, the expansion of the balance sheet and the outlook for price developments," Draghi told a press conference.
The introductory statement said: "The December 2014 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 0.8% in 2014, 1.0% in 2015 and 1.5% in 2016. Compared with the September 2014 ECB staff macroeconomic projections, the projections for real GDP growth have been revised substantially downwards. Downward revisions were made to the projections for both domestic demand and net exports."
Last week Sabine Lautenschläger, a German member of the ECB's executive board poured cold water on QE: "For me, given the current situation, the hurdles for further measures are very high, especially for broad purchase programmes. The interest rates and spreads on many debt instruments are already very low: the risk of market distortions cannot be dismissed. The deciding factor for all programmes is their effectiveness for the real economy and ultimately for price stability, which is what we – the ECB as the central bank for the whole euro area – must be judged on. Innovation cannot be an end in itself."
Jens Weidmann, Bundesbank president, is also opposed to QE measures.
Draghi said the objective is to raise the value of assets on the central bank's balance sheet to the early 2012 level which would mean about €1tn. He also said unanimity is not required on the governing council to trigger a QE program.
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