The European Central Bank stands ready to cut interest rates and could re-start its bond purchase stimulus program if needed to help the economy, President Mario Draghi said Tuesday.
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Markets read the comments Tuesday as a step toward more stimulus in coming months, sending the euro lower against the dollar.
Draghi said in a speech at an ECB conference in Sintra, Portugal, that “further cuts in policy rates… remain part of our tools.” He added that there was “considerable headroom” to re-start bond purchases, which inject newly created money into the financial system in the hope of boosting lending and economic activity.
Eurozone inflation of 1.2% is below the central bank’s goal of just under 2%, considered best for the economy, while growth prospects are under pressure from uncertainty about issues such as the U.S.-China trade dispute and the terms of Britain’s planned departure from the European Union.
Draghi said that in the absence of stronger inflation “additional stimulus will be required” and that the bank would “use all the flexibility in our mandate” to push inflation toward the goal.
The remarks largely echoed statements at his news conference following the bank’s last policy meeting on June 6. On Tuesday he added an extra emphasis, saying that bank officials “are not resigned to having a low rate of inflation forever, or even now.”
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At the June 6 meeting the central bank extended the earliest date for an interest rate increase from year-end to the middle of next year. Talk of re-starting stimulus comes only six months after the bank phased out a 2.6 trillion euro ($2.9 trillion) bond-purchase program that pumped new money into the economy over almost four years in an attempt to drive inflation higher.
The euro traded at $1.1184 by late morning in Europe, down from $1.1241 before Draghi’s speech. More monetary stimulus can send a currency’s exchange rate lower.
