Mario Draghi signals ECB ready to boost stimulus next month

Mario Draghi has signalled that the European Central Bank is ready to boost its stimulus programmes next month as inflation wanes and economic prospects worsen.

"Signs of a sustained turnaround in core inflation have somewhat weakened," the ECB president told a hearing in the European Parliament in Brussels on Thursday.

“Downside risks stemming from global growth and trade are clearly visible.” The euro fell almost half a cent as Mr Draghi began his remarks and was 0.2 per cent lower at $1.0717 around lunchtime.

The odds that the ECB will cut its deposit rate in December climbed to 100 per cent from about 88 per cent before the speech, ECB-dated Eonia forwards showed.

Officials are tussling over whether more action will be needed as soon as the next policy meeting on December 3rd. While Mr Draghi hinted at a near-certain move after the last meeting in October, several national governors have since said they see little cause for action.

Judgment Call

The Frankfurt-based ECB is facing a complex judgment call on whether its public-sector asset-purchase plan, started in March this year, will be enough to counter disinflationary pressures. Euro-area gross domestic product for the third quarter will give an indication of how those measures are working.

The report, due for release on Friday morning, is forecast to show the economy expanded 0.4 per cent, matching the pace of the second quarter.

Data on Thursday showed industrial production in the euro area fell 0.3 per cent in September, more than economists had forecast. The decline follows a 0.4 per cent drop in August, which was the biggest in five months.

With increasing signs that the global outlook is damping price pressures in the euro area, should officials “conclude that our medium-term price-stability objective is at risk, we would act by using all the instruments available within our mandate to ensure that an appropriate degree of monetary accommodation is maintained,” Mr Draghi said.

Inflation was zero in October, at odds with the central bank’s goal of keeping increases just below 2 per cent.

Bloomberg