Draghi Says Rate Cut and QE Are ECB Options to Fight Deflation

Mario Draghi has reinforced expectations that the European Central Bank will cut interest rates or launch a bond-buying programme next month after admitting that “pre-emptive action” may be needed to head off deflation.

The ECB is on guard against deflation and ready to act with conventional and targeted measures, while a broad asset-buying plan remains an option, the bank’s governor said in a speech on Sunday. To guard against a drop in price expectations, “more pre-emptive action may be warranted”, he said.

Draghi’s comments follow suggestions from other ECB policymakers that the bank is ready to act at its policy meeting on 5 June to counter low inflation and weak lending in the 18-country eurozone. Draghi said he expected inflation, which is running at 0.7%, to return slowly to the ECB’s target of just under 2%.

“Our responsibility is nonetheless to be alert to the risks to this scenario that might emerge and prepared for action if they do,” he said at the ECB’s Forum on Central Banking in Portugal. “What we need to be particularly watchful for at the moment is, in my view, the potential for a negative spiral to take hold between low inflation, falling inflation expectations and credit, in particular in stressed countries.”

via The Guardian

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