ECB maintains key interest rate

Mario Draghi announced interest rates would remain unchanged, while calling on governments with “fiscal space” to help eurozone stimulus

ECB President Mario Draghi
President Mario Draghi said the ECB had yet to discuss helicopter money, but called on the German Government to invest more in infrastructure to help stimulate eurozone growth 

Speaking at a press conference, the eurozone would maintain its main interest rate at zero. Draghi noted the ECB had “decided to keep [its key] interest rates unchanged”. He added the ECB “expect[s] them to remain at present or lower levels for an extended period of time”.

It was also confirmed the central bank would maintain its current policy of quantitative easing, buying €80bn worth of bonds per month until March. Whether or not the policy would continue was a possibility, but contingent on inflation picking up. The “monthly asset purchases of €80bn are intended to run until the end of March 2017, or beyond, if necessary”, Draghi noted, “and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.”

The eurozone’s inflation level stands at 0.2 percent, well below the two percent target

The eurozone’s inflation level stands at 0.2 percent, well below the two percent target. Draghi noted: “Inflation rates are likely to remain low over the next few months.” While he predicted inflation rates will start to “pick up towards the end of 2016”, the economic area is unlikely to meet its inflationary target of two percent in 2017.

With many central banks around the world maintaining key interest rates at or below zero while still failing to see any significant uptick in inflation, many economists have started to discuss the possibility of stimulus in the form of so-called ‘helicopter money’. Draghi, however, after two separate questions in the Q&A section of the press conference, declined to comment on the prospect of this policy for the eurozone. “Let’s say we haven’t discussed whether to discuss it yet or not. So it’s just we haven’t discussed it”, he said Draghi.

Draghi also called upon national governments with “fiscal space” to invest in infrastructure spending and other fiscal stimulus, in order to help lift the eurozone out of its deflationary rut. Germany in particular was singled out as country with the possibility to do so. “As I said before”, noted Draghi, “countries that have fiscal space should use it. Germany has fiscal space.”


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