Investing.com - European Central Bank (ECB) president Mario Draghi reiterated the need for accommodative monetary policy on Tuesday but revealed that the euro zone monetary authority was moving towards less dovish territory with regard to quantitative easing, known as its asset purchase program, while he mentioned current trade tensions as one of the main risks to the economic outlook.
In the {{news- 1331597||announcement}} released 45 minutes ahead of Draghi’s appearance, the ECB left its benchmark interest rate unchanged at 0.0% and confirmed that it will continue to purchase €30 billion ($37.2 billion) each month until “the end of September 2018, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim”.
However, the ECB removed language regarding the possibility of increasing the asset purchase program in terms of size and or duration if the outlook was to become less favorable.
In its place, the central bank added that, “The Eurosystem will reinvest the principal payments from maturing securities purchased under the asset purchase program for an extended period of time after the end of its net asset purchases, and in any case for as long as necessary”.
Draghi warns against unilateral trade decisions
In the follow-up press conference, Draghi reiterated these points and offered the updated economic projections which showed that the ECB now expects a broader expansion than previously projected for this year.
Specifically, the forecast is for growth of 2.4% in 2018, compared to the projection of 2.3% in the December publication. Estimates for growth in 2019 and 2020 were left unchanged at 1.9% and 1.7%, respectively.
“The risks surrounding the euro area growth outlook are assessed as broadly balanced,” Draghi added.
To the upside, Draghi mentioned that “the prevailing positive cyclical momentum could lead to stronger growth in the near term.”
“On the other hand, downside risks continue to relate primarily to global factors, including rising protectionism and developments in foreign exchange and other financial markets,” Draghi said.
In the round of questions and answers, Draghi was brought back to current concerns emanating from U.S. President Trump’s plans to implement tariffs and the potential for a global trade war.
Draghi predicted that the immediate spillover of the trade measures won’t be big, but noted his concern over the issue.
“Whatever convictions one has about trade, we are convinced that disputes should be discussed and resolved in a multilateral framework,” he stated.
“Unilateral decisions are dangerous,” Draghi insisted.
Responding to an even later question, Draghi said that the two main risks he perceived were trade and financial deregulation.
Accommodative policy necessary to combat subdued inflation
With regard to price stability, the ECB chief said that measures of underlying inflation remained “subdued overall” although the central bank still expects inflation to rise to target of “below, but close to, 2%” over the medium term.
Draghi stated that the ECB reduced its forecast for inflation in 2019 to 1.4% from 1.5%. However, projections for 2018 and 2020 were left unchanged at 1.4% and 1.7%, respectively.
“Overall, an ample degree of monetary stimulus remains necessary for underlying inflation pressures to continue to build up and support headline inflation developments over the medium term,” Draghi insisted.