Draghi Says ECB Prepares Action as Deflation Risk Non-Negligible
By Jana Randow Jan 2, 2015 2:26 AM ET
European Central Bank President Mario Draghi said he can’t exclude the risk of deflation in the euro area, hinting that the likelihood of large-scale quantitative easing is increasing.
“The risk that we don’t fulfill our mandate of price stability is higher than it was six months ago,” Draghi said in an interview with German newspaper Handelsblatt. “We are in technical preparations to alter the size, speed and composition of our measures at the beginning of 2015, should this become necessary, to react to a too-long period of low inflation. There’s unanimity in the ECB council on that.”
While policy makers agree in principle, the debate over whether fresh stimulus is needed at this point has reopened a rift on the ECB’s Governing Council that now comprises 25 officials after Lithuania joined the currency region on Jan. 1. With inflation seen turning negative this year, some have warned of a deflationary spiral, as others have urged waiting to allow previously agreed measures to show their effect.
Draghi said on deflation that “the risk cannot be entirely excluded, but it is limited” and “we have to act against such risk.” Asked how much the ECB will have to spend on government bonds, he said “it’s difficult to say.”
Italian and Spanish bond yields dropped to record lows after the interview was published and the euro fell to the weakest since June 2010. The single currency was down 0.5 percent at $1.2045 at 8:22 a.m. Frankfurt time. The Governing Council will hold its next monetary-policy meeting on Jan. 22.
To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net
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