Mario Draghi has said there is no limit to how far the European Central Bank will go to hit its targets in a sharp response to market criticism that his latest stimulus package did not go far enough.
The ECB pledged on Thursday to continue its €60 billion-a-month bond buying quantitative easing plan until March 2017 and cut a key interest rate to a fresh record low of minus 0.3 per cent. But the measures disappointed investors that have come to rely on Mr Draghi to smash expectations, with a broad market sell-off after the ECB failed to deliver deeper cuts and an increase in the pace of QE.
In an attempt to reassure markets that the ECB has more firepower should inflation remain low, Mr Draghi said in New York on Friday that the central bank had “the power to act, the determination to act and the commitment to act”.
He added: “There cannot be any limit to how far we are willing to deploy our instruments, within our mandate, and to achieve our mandate.”
He said there was “no doubt that if we had to intensify the use of our instruments to ensure we achieve our price stability mandate, we would”.
The central bank’s mandate is for inflation of just below 2 per cent, a goal that it has missed substantially for the past two years when prices have risen by less than 1 per cent a year.
Mr Draghi was under pressure to defend the package of measures unveiled by the ECB on Thursday after shares plunged and the euro soared on their announcement. The euro dropped on his latest comment and was down 0.7 per cent to $1.0860 over the day.
The ECB president acknowledged to a packed ballroom in a restaurant on Wall Street just blocks from the New York Stock Exchange that the package was “not a revolution” or “a novel monetary policy change”.It was, however, “exactly the right one”.
“It was not meant to address market expectations, it was meant to address our objectives for inflation,” the ECB president said.
Mr Draghi’s deputy, Vítor Constâncio, told CNBC earlier on Friday that the “fault” for the shake-out in the euro lay with markets. “The markets got it wrong in forming their expectations,” he said. “They did indeed have higher expectations than were there and that’s why they reacted like they reacted but that was not our intention.”
– (Copyright The Financial Times)