Mario Draghi says exchange rate is an increasingly important factor in the assessment of the outlook for price stability
The European Central Bank could embark on a broad-based asset purchase programme in the event of a worsening of the euro zone inflation outlook, ECB President Mario Draghi said today.
While stressing that the ECB sees inflation remaining low for a prolonged period before rising again, Draghi set out three scenarios for the ECB to take policy action.
A worsening of the medium-term outlook for inflation “would be the context for a more broad-based asset purchase programme”, he said in the text of a speech for delivery in Amsterdam.
In the event of an undue tightening in the ECB’s policy stance that could arise from bond market tensions, he said the central bank could respond with “a further lowering of the interest rate corridor, including a negative deposit rate.”
Should the ECB’s policy transmission be further impaired, the central bank could respond with “a longer-term refinancing operation targeted towards encouraging bank lending or an ABS purchase programme,” he said.
Draghi also said that “the exchange rate is an increasingly important factor in our assessment of the outlook for price stability.”
The euro fell to $ 1.3815 after the release of Draghi’s comments from around $ 1.3835 beforehand.