European Central Bank President Mario Draghi announced on Thursday that the ECB was looking into pushing through with its money-printing program to counter a slowdown in the Eurozone especially with inflation still under its 2 percent target.
The bank still has not confirmed its plans to extend its monthly asset purchase of 80 million euros, which strengthened their current path to continue with purchases until next March or even longer, should the bank deem it necessary.
“The Governing Council tasked the relevant committees (with the ECB) to evaluate the options that ensure a smooth implementation of our purchase program,” he told a news conference after the decision to keep key interest rates at current levels.
Draghi also said that the bank revised its growth forecast of the Eurozone to a lower level. He also warned of the risks in the bloc, including the uncertainty brought on by Brexit, but declared that the bank does not need to do anything yet.
The euro zone growth forecast was reduced from 1.7 percent to 1.6 percent in 2017 to 2018. The ECB has not changed its inflation forecast of 1.2 percent over the next year.
“For the time being, the changes are not substantial to warrant a decision to act. We see that our monetary policy is effective,” he said.
Deposit rates in the ECB are still at -0.4 percent with banks being charged for keeping money overnight. The main refinance rate is still at 0.00 percent, barely giving any costs to credit.
The euro is currently on a two-week high, but bonds yields and stock markets in the euro zone have fallen after he announced that the meeting did not include the extension of the central bank’s asset-purchase program.
The combination of negative interest rates and printing money at a fast pace could help increase inflation and spur growth in the European region after almost ten years of being mired in crises and economic malaise.
The ECB has reached landmark expenditure of 1 trillion euros last week after buying government bonds to help the economy recover and get nearer to the region’s inflation target. Prices, however are still rising at only 0.2 percent per year, which means that bond spending isn’t enough.
The ECB aims to soon stop prolonging its purchases in order to keep the market from being distorted and run out of eligible bonds. Just last month the ECB could no longer find bonds to purchase in Luxembourg and recently had to stop purchases in Estonia.
The bank still needs more stimulus resulting in speculation that it needs to change its plans before the end of the year to purchase assets if it wishes to continue.
Another option for the ECB is to consider a redesign. Among the options for the redesign include the purchase of bonds that are less than the bank’s -0.4 percent deposit rate, which would extend the maturity range by ten years from 20 to 30 years and a larger portion for some bond issues. The changes, however, could cause concern for the moderates of the Governing Council because of the possible negative effects it could have.