European Central Bank President Mario Draghi said that low inflation still remains a problem in the euro-area and indicated that policy makers are prepared to roll out more monetary stimulus measures.
“The Governing Council will acknowledge these developments and within its mandate will use all the available instruments needed to ensure price stability over the medium term,” said Draghi in ad-libbed comments as he addressed his fellow central bankers at the annual economic symposium convened by the Federal Reserve Bank of Kansas City.
Draghi has in the past said that the ECB will employ broader asset purchases or quantitative easing measures if the medium-term inflation outlook worsens, reported Bloomberg News. His remarks come ahead of the scheduled release of a report that is forecasted to indicate that euro-area inflation fell to 0.3 percent in August, the lowest level since October 2009.
The euro-area economy stagnated in the April-June quarter, while the jobless numbers are close to a record high. Draghi is worried that the poor showing may prompt consumers, investors and businesses to reduce spending in expectation of further decline in inflation, pushing the euro zone into a deflationary spiral that may be hard to pull out of.
Draghi mentioned the ECB’s favorite measure of inflation expectations, the 5-year inflation swap rate, which plunged under 2 percent in August. The measure last passed that level, which is the BOE’s price-stability threshold, in October 2011.
The ECB’s economic policy is increasingly diverging against that of the Federal Reserve. Fed Chair Janet Yellen told her counterparts in Jackson Hole that the U.S. labor market has significantly improved. Fed policy makers are reducing monetary stimulus and discussing when to raise interest rates.To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
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