–Adds Comments On Inflation Outlook, ECB Staff’s Projections
FRANKFURT (MNI) – The Governing Council of the European Central
Bank was divided on whether to lower official interest rates further at
its meeting Thursday, ECB President Mario Draghi revealed afterwards.
“It was a lively discussion,” Draghi told reporters. “Opinions were
divided; not because of the substance, but because of the timing.”
In the end, the Council delivered its second 25 basis point rate
cut in as many months, as most market players had expected, fully
reversing the rate hikes of April and July to lower its main financing
rate to 1.0%.
The “lively” discussion “did not lead to unanimity,” Draghi said.
The decision to cut rates was taken “by majority.”
Draghi refused to say if there was scope for further reductions in
rates: “We never precommit.”
No Council member proposed a larger rate cut today of 50 basis
point, Draghi noted. “We discussed only what you see and some were in
favor and some were not in favor.”
“The rate cut was meant to address a situation where you have
weaker global growth, worse conditions overall, heightened uncertainty
— so overall a domestic economy which is weakening,” Draghi explained.
Moreover, the prospect of slowing inflation creates the needed
monetary policy leeway, since annual rates are expected to fall below 2%
by the end of next year, Draghi indicated.
“Commodity prices, energy prices, indirect taxes — these are all
factors that we view as either declining later or one-off,” he said.
“That’s why we have this profile that says that inflation should
decrease by year-end next year.”
“In an environment of weaker growth in the euro area and globally,
underlying cost, wage and price pressures in the euro area should also
remain modest,” he said.
The updated inflation projections of the ECB’s staff see average
inflation next year between +1.5% and +2.5%, giving a midpoint of 2.0%.
Inflation in 2013 is expected between 0.8% and 2.2% for a midpoint of
1.5%.”
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