FRANKFURT AM MAIN, Aug 29 — The ECB’s next chief Christine Lagarde signalled today that she would stick to Mario Draghi’s expansionary monetary policy that has propped up the eurozone economy amid growing risks to growth.
In a written reply to queries from the European Parliament, Lagarde underlined that inflation has remained stubbornly low in the bloc while growth was stalling.
“It is therefore clear that monetary policy needs to remain highly accommodative for the foreseeable future. The ECB has a broad tool kit at its disposal and must stand ready to act,” she wrote.
Over his eight years in office, the ECB’s incumbent chief Draghi has brought interest rates to record lows and unleashed billions in quantitative easing to ward off the threat of deflation and drum up growth.
But with the prospects of growth dimming, including in Europe’s biggest economy Germany which is about to slip into recession, Draghi said at the ECB’s last monetary policy meeting in July that the bank could fire off a new stimulus package and slash rates further.
The ECB would not wait for economic conditions to worsen before acting, Draghi said, setting the stage for new action at central bankers next meeting on September 12.
Surveys have for months pointed to an economic slowdown in the second and third quarters from the 0.4 per cent growth booked in January-March.
Slower growth in turn threatens the central bank’s target for area-wide inflation, which came in at 1.3 per cent in June.
Besides growing fears over US-led protectionism, the economic mood in the bloc was also dampened by the looming exit of Britain from the European Union.
The danger of a no-deal Brexit has also intensified, with Boris Johnson as Britain’s new prime minister.
Lagarde voiced confidence however that “EU authorities, including the ECB, have prepared for” a hard Brexit.
“Overall, I am confident that the measures taken so far have limited the impact that the UK’s departure from the EU could have on access to financial services in the euro area,” she said, adding however that companies should still use the time leading up to the deadline of October 31 to get ready. — AFP
