Draghi Says ECB Must Raise Inflation as Fast as Possible

By Paul Gordon

Photographer: Martin Leissl/Bloomberg

European Central Bank President Mario Draghi said, “There is a combination of policies... Read More

Mario Draghi said the European Central Bank must drive inflation higher quickly, and will broaden its asset-purchase program if needed to achieve that.
“We will do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires,” the ECB president said at a conference in Frankfurt today. Shorter-term inflation expectations “have been declining to levels that I would deem excessively low,” he said.
Any new action would follow a flurry of activity since June that has included interest-rate cuts, long-term bank loans, and covered-bond purchases, with buying of asset-backed securities due to start as soon as today. Draghi has declined to rule out buying government bonds and said after this month’s monetary policy meeting that staff have been told to study further measures to boost the economy if needed.
“There is a combination of policies that will work to bring growth and
inflation back on a sound path,” Draghi said today. “If on its current trajectory our policy is not effective enough to achieve this, or further risks to the inflation outlook materialize, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases.”
The euro dropped as Draghi spoke. The single currency was down 0.4 percent at $1.2486 at 9:49 a.m. Frankfurt time.
The ECB is trying to boost the size of its balance sheet to early-2012 levels, signaling an increase of as much as 1 trillion euros ($1.25 trillion) to help revive the euro-area economy. Gross domestic product expanded just 0.2 percent last quarter and inflation is running at 0.4 percent, well below the ECB’s goal of just under 2 percent.
Other measures may not win unanimous approval in the ECB’s Governing Council. Bundesbank President Jens Weidmann, who will also speak at the conference today, has argued that large-scale sovereign-debt purchases muddy the line between fiscal and monetary. Governing Council member Klaas Knot said this week that he’s “skeptical” about quantitative easing.