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06/12/2016

Business as usual for Draghi and the ECB

Euro & Finance

Business as usual for Draghi and the ECB

Mario Draghi seemed keen to assure the eurozone that the ECB's policies are stable and doing their job.

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The European Central Bank (ECB) is to stick with its policy of record-low interest rates and bond purchasing scheme, as head of the bank Mario Draghi continues to try and reach the bank’s inflation targets. EurActiv Germany reports.

The ECB, under the direction of its president, Mario Draghi, will stay on its current course of ultra-loose monetary policy. The Frankfurt-based institution yesterday (20 October) left its interest rates at zero percent and indicated its intention to carry on with its programme of bond purchasing. Discussions on whether or not to scrap the current policy “were not held” at a meeting of the bank’s governing council, insisted Draghi.

Speculation had grown recently that the ECB could slowly cut back on its bond purchasing. Draghi said that those reports were “the statement of someone who had no idea and no actual information”. The programme, worth some €80 billion a month, is due to run until the end of March. The Italian banker also added that an extension beyond that date had not been broached either. A discussion on the issue is pencilled in for December.

Draghi indicated that the scheme would not be brought to an abrupt end, instead it is likely that it will be “tapered” or gradually phased out.

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The president also assured the press conference at which he was speaking that the bank would continue, if necessary, “to use all available means” to reach its inflation targets. The ECB sees an inflation rate of near to, but just under, 2% as being ideal. Eurozone inflation reached 0.4% last month.

The bank president’s remarks had an impact on the state of the euro yesterday; on Wednesday (19 October) €1 was worth $1.0973, by yesterday evening it was buying $1.0986.

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Interest rate policy will also continue as it has done of late. The ECB is set to carry on lending other banks money at a rate of zero percent, in order to continue its quest to promote favourable growth and inflation in the eurozone, after it was decided in March to drop rates to their current historically low level.

In other banking news, Draghi’s equivalent at the Bank of England, Governor Mark Carney came under fire this week from Conservative MPs after the Canadian hit back at Theresa May. The prime minister had criticised Carney’s policies, leading the governor to tell her to “let me do my job”.

David Davies (MP for Monmouthshire, not May’s Brexit chief) mistakenly said on Twitter that the prime minister has “every right” to tell Carney how to do his job. This is despite the fact that the Bank of England has been independent from parliamentary control of monetary policy since 1997.