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Don’t expect a discussion on trimming back the eurozone’s quantitative easing package just yet.
The European Central Bank remains committed to expanding its record stimulus programme should inflation fail to hit target, Mario Draghi has said, adding policymakers were not concerned over a four-year inflation high hit last month.
Addressing a hearing of MEPs in Brussels on Monday, Mr Draghi said the ECB did not think the current energy price-induced inflation spike would “durably affect the medium-term outlook for price stability”.
Economic growth in the eurozone, despite coming in better than expected last year, still faced “downside” risks, he said on the back of global factors.
“If the inflation outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council is prepared to increase the asset purchase programme in terms of size and or duration,” said Mr Draghi.
Current consumer prices hit 1.8 per cent in January, in line with the ECB’s target of just below 2 per cent and has heightened criticism that the central bank is falling behind the curve on higher prices.
But the ECB predicts inflation will still undershoot its target over a three-year period, averaging at 1.7 per cent projected for 2019. Core inflation meanwhile, which strips out volatile elements such as food and energy prices, remains at just 0.9 per cent.
The ECB is planning to scale back its quantitative easing package from April this year, running the programme to the end of December at the earliest.
This decision to carry out purchases worth €60bn rather than €80bn a month “struck a balance” between rising growth and still persistent risks to the inflation outlook, said Mr Draghi, adding:
Support from our monetary policy measures is still needed if inflation rates are to converge towards our objective with sufficient confidence and in a sustained manner… So far underlying inflation pressures remain very subdued and are expected to pick up only gradually as we go on.