Draghi suggests expansion of ABS purchases

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ECB president Mario Draghi has stressed the central bank is ready to “step up the pressure” in order to tackle low inflation, by expanding its purchases of asset backed securities (ABS).

Draghi addressed the European Banking Congress in Frankfurt as a keynote speaker, he highlighted the importance of unconventional monetary policy in order to tackle low inflation, including negative deposit rates, the TLTRO programme and ABS purchases.

“If inflation expectations fall, the real interest rate rises, which is the interest rate that matters most for investment decisions. And because nominal short-term rates in the euro area have already reached the effective lower bound, they cannot be adjusted downwards further to compensate for this. In other words, any de-anchoring of expectations would cause an effective monetary tightening – the exact opposite of what we want to see,” Draghi said.

Responding to weak production data and demand figures, Draghi concluded: “If on its current trajectory our policy is not effective enough to achieve this, or further risks to the inflation outlook materialise, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases.”

Following this remarks, the Euro fell by 0.81% against the dollar to $1.2441 as of  Friday noon  CET according to Bloomberg.

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