– No Discussion on Interest Rate Changes
– Best Economic Performers Should Not Inflate
– LTROs a ‘Classical’ Monetary Policy Tool

FRANKFURT (MNI) – European Central Bank President Mario Draghi said
Wednesday it was too soon to talk about an exit strategy from the ECB’s
extraordinary liquidity measures.

“Any exit strategy talk for the time being is premature,” Draghi
told a press conference following bank’s decision to leave its key
interest rates unchanged. He said “there wasn’t any discussion on
interest rate changes.”

Draghi said the central bank was not confronted with any immediate
inflationary pressures and inflation expectations were “anchored over
the medium term,” although he did note price pressures from commodities
and indirect tax hikes.

Observing that inflation in March had slowed to 2.6% from 2.7% in
February, he reiterated ECB projections that inflation will be above 2%
this year and decline below 2% next year.

Any “pass-through” from higher oil or other commodity prices into
second-round effects on inflation will be monitored with “extreme
attention” and the ECB will respond in a “timely and speedy fashion,” he
said.

Draghi said the needed internal rebalancing of the Eurozone should
take place without inflating the best-performing economies. “The
solution would be to make all countries as competitive as the best
partners — not trying to lower the best performers.”

“We can have 2% or below 2% as an inflation rate for the whole euro
area without having to inflate the best performers,” Draghi said. “I
think it is a very feasible objective.”

Asked whether the ECB was concerned about recent pay accords
in Germany, he said, “I wouldn’t comment on any individual wage
settlement. The one you mentioned, I won’t comment on that. But
certainly there is one case where we will pay a lot attention to
pass-throughs.”

Draghi said that the ECB needed “first and foremost an assessment
of the impact that the two LTROs have had on the banking system and more
generally on the financial system.”

The central bank’s analysis so far has not taken account of the
second LTRO, which was only settled on March 1, he reminded. LTROs are
“powerful and complex measures that have affected balance sheets of
banks in a variety of ways,” and further study of their impact is
needed, he said.

“We know these two measures have avoided a major credit crunch and
relieved funding pressure on the banks,” he said. “We will assess the
impact of the three-year LTROs and will assess price stability month by
month and then we will make up our minds.”

Asked when the ECB would return to a “classical monetary policy”,
Draghi responded that the LTROs were “very much a classical monetary
policy tool” as the central bank is lending to commercial banks in
return for collateral.

The LTROs were a “repo-based monetary expansion,” Draghi said. “The
real difference is the maturity, which is a three-year term rather than
short term,” he added.

–Paris newsroom, Tel: +331 4271 5540; email: jduffy@marketnews.com
–London Bureau; Tel: +44 207 8627492; email: ukeditorial@marketnews.com

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