Tags: draghi | ecb | rate | cut

Draghi Signals ECB May Cut Rates Again If Data Worsen

Monday, 09 July 2012 11:24 AM

European Central Bank President Mario Draghi signaled policy makers may be open to another interest-rate cut if the economic outlook warrants it.

“We have to look at what the situation is, the data and the developments, and then we will make up our minds on the Governing Council what to do,” Draghi told lawmakers in Brussels Monday when asked if the central bank could cut rates again. While the ECB never pre-commits, it will “do everything to maintain price stability -- from both sides -- in the euro area,” he said.

The ECB last week cut its main interest rates by 25 basis points, taking the benchmark to a record low of 0.75 percent and the deposit rate to zero. Policy makers next decide on rates on Aug. 2. With the sovereign debt crisis threatening to tip the 17-nation euro economy into recession, some economists say the ECB may have to resort to unorthodox methods to stimulate growth.

“It would take a negative deposit rate, or the start of quantitative easing, to provide fresh stimulus,” said Nick Kounis, chief European economist at ABN Amro Bank NV in Amsterdam. “Both are areas where the ECB might not be willing to go at this stage.”

ECB staff are “searching for actions that could attenuate the current crisis,” as long as they don’t breach the central bank’s inflation-fighting mandate, Draghi said.

He said last week’s rate cut “took account of further dampening of inflationary pressures, as some of the previously identified downside risks to economic activity materialized.”

“Indicators for the second quarter of 2012 point to a weakening of growth and heightened uncertainty,” Draghi said. “But looking ahead, we continue to expect the euro-area economy to recover gradually, albeit with dampened momentum.”

Draghi also said it’s “essential” that euro-area governments give up some sovereignty in order to establish a fiscal union. Common euro bonds “come at the end of this process,” he said.

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Monday, 09 July 2012 11:24 AM
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