Wednesday

1st Feb 2023

'Be patient,' ECB chief tells Germany

  • Draghi: "We don't have public admissions of guilt, Mao-Chinese style, as way of working". (Photo: ECB/Flickr)

The European Central Bank (ECB) has announced on Thursday (19 January) that it will keep its current monetary policy unchanged and defended it against growing German criticism.

The ECB maintained its base interest rate at 0 percent and its deposit rate at -0.4 percent.

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It also confirmed that its €80-billion per month bond-buying scheme would continue until March and reduced to €60-billion per month until December.

The eurozone's bank president Mario Draghi said at a presse conference in Francfort that he expected the 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 added that the so-called quantitative easing (QE) scheme would continue after December "if necessary, and in any case" until inflation in the eurozone comes back to the bank's objective of "under but close to 2 percent".

Draghi said that inflation could rise in coming months, due in particular to higher oil prices as well as the ECB's policy.

He added that a "very substantial degree of monetary accommodation" was still needed and insisted that the ECB was pursuing the right policies.

He said that in their meeting, the bank's governors were "unanimous in looking back at the decision taken in December [the QE extension until December] and stating they were the right policy answers."

He said that it was "increasing[ly] clear that this policy stance has been successful".

Unanimity of the banking heads included Germany's Bundesbank president Jens Weidmann, amid criticism of the ECB's policies by the country's finance minister Wolfgang Schaeuble just days before the meeting.

"I would much prefer it if interest rates were not so low," Schaeuble told The European magazine last week. He added in an interview to Sueddeutsche Zeitung that "it would presumably be right if the ECB dared to exit this year" what he called an "ultra-expansionary monetary policy".

In response Draghi said that critics had to be "patient".

"Low rates are necessary now to get higher rates in the future. It's in the interest of everybody, including Germany," he said.

He said that "recovery of the whole eurozone is in the interest of German citizens" and the low rates would "disappear faster as the recovery happens faster".

He insisted that "benefits will occur for all citizens of the eurozone, including the German citizens," whether they are savers, borrowers or entrepreneurs.

'Too early' to comment on Trump

It is not the first time that Draghi and Schaeuble, two of the eurozone's most powerful officials, are at loggerheads over which monetary policy to pursue.

Last year, after Schaeuble had said that low rates caused "extraordinary problems" for German banks and private pensions, Draghi had pointed out that his institution's mandate was "to pursue price stability for the whole of the eurozone and not only for Germany".

Further defending his policies, the ECB chief said on Thursday, "we don't have public admissions of guilt, Mao-Chinese style, as a way of working".

Asked about incoming US president Donald Trump's remark that the dollar is "too strong" and "it’s killing us", Draghi noted that there is a "very strong international consensus to refrain from competitive devaluations".

He added however that it was "too early" to comment on the consequences of Trump's policies.

"Let's see what are the real policies following the statements. I'd rather comment on policies than just statements," he said.

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