'Vigorous' inflation recovery still needs low rates: ECB's Draghi

BRUSSELS (Reuters) - The recovery in inflation expected by the European Central Bank is conditional on market interest rates staying low through the summer of next year, ECB President Mario Draghi said on Monday. Draghi described an acceleration in underlying inflation in the euro zone as 'relatively vigorous' and expressed confidence that a pick-up in wage growth would continue. But he reaffirmed the ECB's pledge to keep rates at their current, rock-bottom level 'through the summer' of next year, implicitly rebuffing calls from some policymakers to tighten policy more quickly.

Reuters September 25, 2018 00:05:14 IST
'Vigorous' inflation recovery still needs low rates: ECB's Draghi

Vigorous inflation recovery still needs low rates ECBs Draghi

BRUSSELS (Reuters) - The recovery in inflation expected by the European Central Bank is conditional on market interest rates staying low through the summer of next year, ECB President Mario Draghi said on Monday.

Draghi described an acceleration in underlying inflation in the euro zone as "relatively vigorous" and expressed confidence that a pick-up in wage growth would continue.

But he reaffirmed the ECB's pledge to keep rates at their current, rock-bottom level "through the summer" of next year, implicitly rebuffing calls from some policymakers to tighten policy more quickly.

"The path of inflation that the Governing Council viewed as moving closer to the objective of a sustained adjustment was -- and still is -- conditional on a term structure of interest rates that embodies expectations of constant policy rates over an extended period of time after December 2018," Draghi told the European Parliament.

The ECB's message on rates has been subject to different interpretations by investors and even policymakers, some of whom rule out a hike until the autumn of 2019 while others see scope for a rate increase in the summer.

Austria's central bank governor Ewald Nowotny said in an interview published on Sunday he would welcome moving the ECB's deposit rate towards -0.2 percent from -0.4 percent now.

Money market investors beefed up their bets on a rate hike in October 2019 after Draghi's words, while the euro and bond yields rose.

Benoit Coeure and Peter Praet, two influential members of the ECB's Executive Board, said last week the central bank would need to start clarifying next year the likely path of its interest rates beyond its first hike.

PROTECTIONISM AND BREXIT

Draghi said an increasingly bitter trade dispute between the United States and China was probably affecting confidence and would have a big impact on the euro zone if the protectionist measures that have been announced are implemented.

The United States and China imposed fresh tariffs on each other's goods on Monday and U.S. President Donald Trump reiterated a threat to impose further tariffs on Chinese goods should Beijing retaliate.

"For the time being, we don't know what the final size of all this will be, but we know it's going to be big and we should do our best to be prepared," Draghi said.

He sounded more sanguine on the consequences of a hard Brexit -- political jargon for a divorce between Britain and the European Union without an agreement on their future relationship.

But he singled out the clearing of financial contracts -- which include trillions of euros worth of derivatives based on the single currency but processed in London -- as an area of concern.

"If there is a sudden event, (an) unprepared hard Brexit of the sharpest kind, we have to see how the many contractual positions are going to be regulated after that," Draghi said.

(Reporting By Francesco Canepa; Editing by Matthew Mpoke Bigg and Catherine Evans)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date:

TAGS:

also read

France, Germany to agree to NATO role against Islamic State - sources
| Reuters
World

France, Germany to agree to NATO role against Islamic State - sources | Reuters

By Robin Emmott and John Irish | BRUSSELS/PARIS BRUSSELS/PARIS France and Germany will agree to a U.S. plan for NATO to take a bigger role in the fight against Islamic militants at a meeting with President Donald Trump on Thursday, but insist the move is purely symbolic, four senior European diplomats said.The decision to allow the North Atlantic Treaty Organization to join the coalition against Islamic State in Syria and Iraq follows weeks of pressure on the two allies, who are wary of NATO confronting Russia in Syria and of alienating Arab countries who see NATO as pushing a pro-Western agenda."NATO as an institution will join the coalition," said one senior diplomat involved in the discussions. "The question is whether this just a symbolic gesture to the United States

China's Xi says navy should become world class
| Reuters
World

China's Xi says navy should become world class | Reuters

BEIJING Chinese President Xi Jinping on Wednesday called for greater efforts to make the country's navy a world class one, strong in operations on, below and above the surface, as it steps up its ability to project power far from its shores.China's navy has taken an increasingly prominent role in recent months, with a rising star admiral taking command, its first aircraft carrier sailing around self-ruled Taiwan and a new aircraft carrier launched last month.With President Donald Trump promising a US shipbuilding spree and unnerving Beijing with his unpredictable approach on hot button issues including Taiwan and the South and East China Seas, China is pushing to narrow the gap with the U.S. Navy.Inspecting navy headquarters, Xi said the navy should "aim for the top ranks in the world", the Defence Ministry said in a statement about his visit."Building a strong and modern navy is an important mark of a top ranking global military," the ministry paraphrased Xi as saying.