SINTRA, Portugal (Reuters) – The European Central Bank will ease policy again if inflation does not head back to its target, ECB President Mario Draghi said on Tuesday, reinforcing market expectations that it will offer further stimulus in the coming weeks.
The ECB has undershot its inflation target of just under 2 percent since 2013 and a slowdown in growth has raised the risk that price growth will ease further, despite years of extraordinary accommodation.
“In the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required,” Draghi told the ECB’s annual conference in Sintra, Portugal.
He added there was still “considerable headroom” for more asset purchases and that the ECB could also adjust its guidance, cut rates and provide mitigating measures to offset any unwelcome side effects of negative rates.
“Will use all the flexibility within our mandate to fulfil our mandate – and we will do so again to answer any challenges to price stability in the future,” Draghi said.
He added that the ECB would use the “coming weeks” to study its options, suggesting that action from the bank may come sooner rather than later.
Draghi also dismissed market concerns that asset purchases lacked potency as the ECB was coming up against its self-imposed limits, including a rule that prevents the ECB from buying more than one-third of a particular country’s debt.
He noted that the limits must be adjusted to the challenges faced by the bank and noted that the European Court of Justice had already confirmed that the ECB has broad discretion in using its tools.
“We are committed, and are not resigned to having a low rate of inflation forever or even for now,” Draghi said. “That aim is symmetric, which means that, if we are to deliver that value of inflation in the medium term, inflation has to be above that level at some time in the future.”
(Reporting by Francesco Canepa and Balazs Koranyi; Editing by Catherine Evans)