Published: Fri, April 07, 2017
Markets | By Lucia Cruz

European Central Bank's Draghi says stimulus still needed

European Central Bank's Draghi says stimulus still needed

"We are confident that our policy is working", ECB President Mario Draghi said at a conference in Frankfurt, stressing "sufficient confidence" would be necessary for the central bank to change tact.

EUR AUD was also pressured by comments from ECB board member Peter Praet who also spoke in Frankfurt as he suggested that the central bank's ultra-low interest rates would likely remain in place well past the end of the Bank's quantitative easing programme, which is now set to terminate in December.

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Speculation mounted in recent weeks that the European Central Bank could renege on a commitment to keep interest rates at current, or lower, levels until the end of its programme of mass bond-buying, known as quantitative easing.

As the region's economy picks up speed, top ECB officials have sent out mixed messages over whether the central bank is ready to phase-out sweeping stimulus measures such as its EUR2.3 trillion ($2.5 trillion) bond-purchase program and sub-zero interest rates. The Euro dropped to a three-week low in response before recovering some of its losses.

The ECB president tried to dispel rumours that the eurozone's monetary policymakers would raise their deposit rate, now minus 0.4 per cent, in the autumn, saying that the negative side effects of the policy "have so far been limited".

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"Our policy instruments act as strong complements", Mr. Praet said.

French and German insurers were initially sent lower after European regulators said they would lower the interest rate they use to calculate their liabilities, which may entail higher capital requirements for some of them.

"Changes in the formulation at the current juncture could lead to an undue upward shift in market interest rates and tighten financial conditions to an extent that was not warranted by the prevailing outlook for price stability", the minutes said. However, his Belgian counterpart, Jan Smets, told The Wall Street Journal that no such pivot had taken place. Business surveys published by Markit on Wednesday indicated activity was at its strongest level in nearly six years. The ECB aims to keep inflation just below 2%.

He added that continuing momentum was dependent on controlling inflation dynamics.

An argument was made that some indicators have started to suggest an increasingly expansive monetary policy, the report said.

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