Mario Draghi said policy makers are still waiting for inflation to catch up with the economic recovery as they put off discussions on winding back stimulus until after the summer.
“We are finally experiencing a robust recovery where we only have to wait for wages and prices to follow course,” the European Central Bank president told reporters at a news conference in Frankfurt on Thursday. “We need to be persistent and patient and prudent, because we’re not there yet.”
Draghi read out an assessment of the economic outlook that was very similar to the one he offered in June, when he called for colleagues to allow the central bank’s stimulus time to work. With less than half a year of quantitative easing left, policy makers have been debating publicly about when they might start reducing asset purchases.
“While the ongoing economic expansion provides confidence that inflation will gradually glide toward levels in line with the inflation aim, it has yet to translate into stronger inflation dynamics,” Draghi said. “A very substantial degree of monetary accommodation is still needed for underlying inflation pressures to gradually build up.”
His comments follow what seemed to be a shift in stance three weeks ago, when he said that renewed reflationary forces may provide room for adjusting the parameters of current stimulus, while keeping the level of accommodation broadly unchanged.
“Draghi clearly wanted to leave for the summer break with a dovish touch, pushing decisions for later,” said Anatoli Annenkov, senior economist at Societe Generale in London. “It looks well in line with a very gradual and prolonged exit, with inflation data not expected to make it any easier to motivate reduced stimulus.”
The euro surged as Draghi said the repricing of the exchange rate had received some attention, without pushing back against the currency’s strength.
Draghi suggested the message he delivered three weeks ago had been overinterpreted. He said that much was made of the word “reflation,” and that little has changed in the outlook for price growth. Euro-area inflation is expected to average 1.6 percent in 2019, according to ECB forecasts published last month.
Economists predict the first official decision on the future of the policy path will be announced in September, when the Governing Council next meets and publishes new projections. ECB staff are studying various options for how bond-buying might eventually be wound down, according to euro-area officials familiar with the matter. Draghi said committees haven’t been asked to assess scenarios.
Officials will reassess their stimulus in the fall, when the they will have more information than they have today, Draghi said. The current program of purchases is set to expire at the end of the year.
Earlier Thursday, policy makers kept their language on quantitative easing unchanged, retaining a pledge to increase the program in size or duration if warranted. Economists had been split over whether they might remove it after the ECB in June discussed scrapping that part of the policy statement.
“The last thing that the Governing Council may want is an unwanted tightening of the financing conditions” which could slow down the process or jeopardize it, Draghi said.