European Central Bank President Mario Draghi said on Thursday that the Euro-area economy will return to growth by the end of the year, handing policy makers a reason to hold back fresh stimulus. Draghi spoke after the ECB Governing Council in Frankfurt left its main refinancing rate at 0.5% after reducing it by a quarter points last month.
“Euro-area economic activity should stabilize and recover in the course of the year, albeit at a subdued pace,” Draghi told reporters. “We will monitor very closely all incoming developments and we stand ready to act.”
The Euro climbed to a four-week high against the dollar and Germany’s two-year note yield rose to the highest level since February.
An improvement in sentiment is giving Draghi time to consider a menu of further measures that the ECB may deploy to aid the 17-nation economy, now in its longest recession since the Euro began trading in 1999.
Among the options he cited: Cutting the so-called deposit rate into negative territory, lending more money to banks, easing collateral rules, reviving the market for asset-backed securities and providing investors with greater guidance on how long borrowing costs will stay low.
“We have a range of different instruments,” said Draghi. Economic data since the ECB meeting last month “were not enough to grant immediate action,” he said.
The ECB held its deposit rate at zero and its marginal lending rate at 1%. Draghi said the consensus of officials had been not to act, given the recent data.
As the ECB revamped its economic outlook, Draghi called inflation risks “broadly balanced” and noted “downside risks” for growth.
The bank cut its forecast for the Euro area’s economy to show contraction of 0.6% this year from an estimate of minus 0.5% made in March. Officials raised their projection for next year to 1.1% from 1%.
Draghi described the untapped Outright Monetary Transactions bond-buying program as “the most successful monetary policy measure” of recent times, crediting it with calming financial markets and defending it ahead of a review by Germany’s constitutional court.
He played down differences within the ECB 23-member council, saying reports of splits over the direction of policy were a “dramatization.”
“You have different views in all central banks,” he said. “In a period of uncertainty, there are obviously a variety of opinions.”
On the topic of bank supervision, Draghi said the ECB wants governments to make an explicit commitment to backstop banks. He said it’s essential to strengthen the resilience of the region’s lenders and repeated that his staff is currently reviewing the health of balance sheets.