European Central Bank President Mario Draghi Sunday signaled the central bank’s March policy meeting could be critical in determining whether the ECB will provide additional stimulus to shore up the nascent euro-zone economic recovery.
“By then we’ll have the full set of information needed for us to decide whether to act or not,” the central bank chief said here at a meeting of global financial leaders.
Mr. Draghi’s comments highlighting the significance of the meeting are likely to boost market speculation the ECB will cut rates at its next policy meeting in early March. Inflation growth in the euro zone has been well below the central bank’s target for months, prompting fears of deflation, defined as a persistent downward trend in prices that threatens consumer spending, wages, business profits and investment. At the March meeting, the euro-zone central bank will release its 2016 inflation forecasts, the first time it will issue projections with such a long time horizon.
The ECB held all of its key interest rates steady when it met this month, despite annual euro-zone inflation at a low 0.7%, well below the ECB’s mandate to maintain price stability, defined as inflation just under 2% over the medium term, but analysts expect the central bank may have sufficient grounds to lower interest rates or take other stimulus measures if the ECB’s own staff inflation forecasts remain significantly below the target.
On Saturday, the ECB’s chief economist acknowledged the persistent weak price pressures in the euro zone.
“We admit that the pressures on prices are weak, and that this weakness in price development is extending into the medium term,” Peter Praet, an ECB executive board member told Expresso, a Portuguese newspaper, in an interview released by the ECB.
Both Mr. Praet and Mr. Draghi dismissed fears of deflation. Inflation expectations in the euro zone are well anchored, Mr. Draghi said.
“We still see progress, but we still see downside risks to recovery,” Mr. Draghi said, noting the recovery in Europe is “modest, fragile, with uneven levels of activity.”
Still, both monetary-policy makers pledged to act swiftly, if needed, to prevent the euro-zone recovery from derailing. In recent months, ECB officials have publicly discussed the conventional measures, as well as the unconventional tools at their disposal, such as large-scale asset purchases, known as quantitative easing, and taking its rate on overnight bank deposits into negative territory.