Draghi leaves door open; no ECB discussion of helicopter money

Investing.com – European Central Bank (ECB) president Mario Draghi reiterated on Thursday that the euro area central bank would continue to use all monetary policy tools within its mandate in order to return inflation to the 2% target.

At the press conference following the announcement that the ECB made no changes to monetary policy, Draghi said the ECB expected interest rates to “remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases.”

He confirmed that, as announced on March 10, the monthly purchase program had been expanded to €80 billion and that it was “intended to run until the end of March 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.”

Draghi added that the ECB still planned to commence the first new series of targeted longer-term refinancing operations (TLTRO II) in June as well as begin the corporate sector purchase program (CSPP).

Corporate bond purchases

Draghi stressed that details on the CSPP would be released after the press conference but explained that the bonds being purchased from the corporate sector would not include any banks.

He added that the debt would be investment grade with a maturity up to 30 years and that the risk would be fully shared.

Economic assessment

Draghi was cautious on the outlook for the euro zone economy, though he expected first quarter growth to be in line with the expansion seen in the fourth quarter of last year.

He did note that financing conditions had improved and expected the euro area economic recovery to proceed.

However, he noted that the risks to growth “still remain tilted to the downside”.

“Our recent monetary policy decisions have improved overall financing conditions, which should support the outlook for consumption and investment,” he said.

“However, uncertainties persist and relate, in particular, to developments in the global economy and to geopolitical risks,” the ECB chief explained.

Helicopter money

When asked about the possibility of using so-called “helicopter money”, as the idea of handing out euros to citizens is known, Draghi admitted his surprise to the reactions after the last meeting and made it clear that the ECB was not considering the possibility.

“We haven’t studied the concept,” he declared.

ECB independence

Regarding questions of recent criticism coming from German politicians about the central bank’s monetary policies, Draghi insisted that “we obey the law, not the politicians, because we are independent.”

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He furthered offered that the governing council was “unanimous” in both defending the independence of the ECB and in the appropriateness of the current measures.

ECB does not target the exchange rate

“As I’ve said many times, the exchange rate is not a policy target”, Draghi insisted.

The ECB chief did admit that exchange rates were important factors in growth and inflation but said he was convinced that the measures taken in March had and will be effective in avoiding second round effects of inflation.

No speculation on Brexit

Draghi refused to speculate on the result of the U.K.’s June 23 referendum on its membership in the European Union (EU).

The ECB simply stated that a Brexit, as the decision to leave the EU, held only a “limited risk” that it could endanger the euro area recovery.