The remarks opened the door further to expanding the 1.1 trillion euro ($1.2 trillion) stimulus program that is meant to raise inflation and boost the eurozone’s spotty economic recovery.
Draghi made it clear that the ECB was also considering other measures, such as pushing the interest rate on bank deposits at the ECB even further into negative territory.
“We are ready to act if needed,” he said Thursday after a policy meeting in Malta.
He said the ECB’s governing council had “a very rich discussion” and was “open to a whole menu of monetary policy instruments.”
The comments pushed the euro sharply lower, as more monetary stimulus tends to weigh on a currency. The euro fell from above $1.1300 before Draghi’s comments to $1.1193, while stocks rose. Analysts had expected Draghi to hold out the possibility of more stimulus in order to keep a lid on the euro’s exchange rate.
Draghi stressed that the exchange rate “is not a policy target,” but said the ECB could consider it because it affected inflation.
Controlling inflation is the ECB’s key job. And by last count, in September, the inflation rate was way too low at minus 0.1% annually. That’s a sign of weak demand and can also make it harder for indebted countries and companies to reduce their burdens.
The ECB has already cut its benchmark interest rate to a record low of 0.05%. The bank left it there, and has said that’s as low as it can go.
Draghi said, however, that one tool that was discussed Thursday was a potential further cut in the rate charged to banks to leave money on deposit at the central bank. The rate is already negative 0.2%. By cutting it further, it could push banks to not hoard money at the ECB but invest or lend it.
The ECB’s stance was not “wait and see,” he said, but “work and be ready.”
The eurozone economy grew 0.4% in the second quarter but unemployment remains high at 11.0%.
Draghi said that eurozone demand seemed resilient but that trouble in emerging markets, particularly China, posed risks that could push the bank to act.
The ECB is stimulating the eurozone economy by buying bonds from banks with newly created money, in hopes they will expand credit. The aim is to boost growth and inflation, which is way too low at minus 0.1%. By in essence printing money to make the purchases, the ECB has increased the supply of euros available, which has pushed down its exchange rate.
McHugh contributed from Frankfurt, Germany
