December 5, 2015 / 12:20 AM / 2 years ago

ECB head defends stimulus package after market backlash, divisions

FRANKFURT\NEW YORK (Reuters) - The head of the European Central Bank defended the bank's latest stimulus package on Friday, brushing off concerns about a negative market reaction to the measures and signs of divisions among ECB rate setters.

Mario Draghi said he was confident the measures unveiled on Thursday, which included a small deposit rate cut and an extension of its asset purchase programme, would help bring inflation back to the ECB's target, adding the bank was ready to ease its policy further if needed.

"I can say therefore with confidence – and without any complacency – that we will secure the return of inflation to 2 percent without undue delay, because we are currently deploying tools that we believe will achieve this, and because we can, in any case, deploy our tools further if that proves necessary," Draghi told an audience in New York.

Yet the ECB's package had disappointed markets, who had hoped for more radical action, and divided ECB policy makers, suggesting any further step to stimulate inflation may face a higher hurdle.

Comments by ECB rate setters since the decision suggest there was not enough support for bolder action on the ECB's governing council, which includes the bank's six executive board members and the 19 governors of the euro zone's national central banks, and that even the measures approved encountered some resistance.

The head of Germany's Bundesbank, Jens Weidmann, said he had voted against easing, judging that the current low inflation was mainly due to low oil prices.

Latvia's central bank governor Ilmars Rimsevics, who declined to say how he voted, said he questioned some of the measures announced on Thursday during the Governing Council.

Mario Draghi, President of the European Central Bank, answers questions after speaking at the Economic Club of New York during a luncheon in the Manhattan borough of New York December 4, 2015.Lucas Jackson

"I supported a part of these measures, I discussed another [part]," Rimsevics said.

Executive Board member Yves Mersch, on the other hand, stood by Thursday's decision and even left the door open for more stimulus in the future if needed.

Market expectations had been sky high ahead of the meeting after ECB President Mario Draghi and other executive board members had, in a number of speeches since October, dropped hints that more stimulus was urgently needed.

The European Central Bank (ECB) headquarters are pictured in Frankfurt, Germany, September 3, 2015.Ralph Orlowski

The market's disappointment raised a question mark over how far the ECB and its president can be expected to act in future and whether investors will still be willing to give them credence.

Draghi talked down the importance of market expectations in the ECB's latest decision.

"The package was not meant to address market expectations, it was meant to achieve our objective," he said.

Belgium's central bank governor also expressed strong confidence in the measures announced on Thursday and dismissed concerns about the market's negative reaction.

"If markets expected another thing, that's their view, but I would like to invite them to look... at the links between what we are doing and what is happening in financial markets and the real economy and to have confidence that these links will be reinforced by the measures taken yesterday," Jan Smets said.

Additional reporting by Ģederts Ģelzis in Riga and Philip Blenkinsop in Brussels; Editing by Mark Trevelyan

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