ECB President Draghi Confirms ’Substantial Monetary Accomodation’
- Current ECB policy is still needed for inflationary pressures to build.
- The single-currency remains under downside pressure.
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ECB President Mario Draghi has re-iterated the need for accommodative monetary policy at a speech at The Hague, despite the economic backdrop improving, ahead of next month’s ECB policy meeting (June 8). The Netherlands is becoming increasingly worried that saver rates are too low and that the housing market bubble continues to inflate.
Draghi said that while the economic recovery is “becoming increasingly solid… it is too early to declare success.” He added,“Underlying inflation pressures continue to remain subdued and have yet to show a convincing upward trend. The domestic drivers of inflation, namely wages, are not yet responding to the recovery and the narrowing output gap. Maintaining the current very substantial degree of monetary accommodation is still needed for underlying inflation pressures to build up and support headline inflation in the medium term.”
Draghi concluded that Member States must also pursue policies that push economic growth and that the EU should also “further strengthen the architecture of Economic and Monetary Union in a way that fully reflects the interdependence among the euro area economies.”
And it is not just the Dutch pushing for a change of European monetary policy. German central bank President Jens Weidmann recently said that the ECB should start to tighten policy as German headline inflation hit 2%, cutting into saver’s returns. Higher rates, and by virtue a stronger EUR, would also ease the pressure on Germany, whose record trade surplus is provoking growing concerns, both in and outside the EU. According to the US trade advisor Peter Navarro, the weak EUR has been ‘very unfair’ to the US, adding that Germany had used a ‘grossly undervalued euro to exploit’ the US and the EU.
The already weak EUR barely moved on Draghi’s prepared statement, waiting for the Q&A session to get further colour to the President’s statement.
Chart: EURUSD Five-Minute Timeframe (May 10, 2017)
--- Written by Nick Cawley, Analyst
To contact Nick, email him at Nicholas.email@example.com
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