European Central Bank head Mario Draghi says Japanese-style stagnation possible amid high unemployment and falling inflation
The European Central Bank sent the euro tumbling on world markets after it warned that the 18-member currency zone may need further support to prevent a Japanese-style period of stagnation.
The ECB president, Mario Draghi, said persistently high unemployment, falling inflation and difficult lending conditions were harming the recovery, and the ECB stood ready to use all the tools available to maintain confidence and growth.
Speaking as the central bank kept interest rates at 0.25% on Thursday, he said the ECB would consider printing money as well as other measures should there be a further deterioration in the availability of credit or another drop in inflation.
“The governing council strongly emphasises that it will maintain an accommodative stance of monetary policy for as long as necessary,” he said.
The warning came as the UK economy appeared to be moving strongly in the opposite direction and concerns that it will soon overheat.
The Bank of England’s monetary policy committee kept base interest rates steady at 0.5% at its January meeting but an increasing number of analysts called on the Bank’s governor, Mark Carney, to prepare for a rate rise as early as the summer.
Draghi said a Japanese-style period of stagnation that brings with it falling prices and a decline in consumer demand has yet to arrive, but the ECB must be ready to play a part in boosting confidence in the financial system and broader eurozone economy.
He stopped short of saying the eurozone crisis is over. “The recovery is there but it’s weak, it’s modest and as I said many times, it’s fragile, meaning that there are several risks, from financial to economic to geopolitical to political risks, that could undermine easily this recovery,” he said.
Full article: Euro plummets after ECB warns currency zone may need more support (The Guardian)