ECB President Draghi: Policy to remain accommodative as long as necessary

Mario Draghi

Mario Draghi

European Central Bank President Mario Draghi said on Monday that the central bank continues to expect that interest rates will remain at present or lower levels and that policy will “remain accommodative for as long as necessary.”

“Adjusting interest rates is not always sufficient to maintain price stability,” Draghi said before the European Parliament. “In this crisis, interest rate cuts have been transmitted more slowly and unevenly across euro area countries due to the fragmentation of financial markets. To address this problem, we adopted in recent years a series of non-standard measures. The purpose of these was – and remains – a more effective transmission of the ECB’s interest rate cuts, so that our monetary policy can reach companies and households throughout the euro area.”

In November, the ECB announced it would continue to conduct all refinancing as fixed rate tender procedures with full allotment until at least 2015, thereby addressing banks’ funding concerns. Draghi said it will take time before the ECB’s policy actions have an impact on the economy.

“As usual, it takes time before our policy decisions work their way through financial markets and affect the economy,” Draghi said. “The November decisions on interest rates, on forward guidance and on prolonging full allotment in all refinancing operations are working their way through.”

Draghi also discussed the central bank’s single supervisory mechanism, saying the ECB is working to ensure that it will be ready to assume supervisory responsibilities in November.

“We will make sure that the ECB’s monetary policy mandate focused on price stability will not be affected by considerations and decisions related to banking supervision,” Draghi said. “Internal rules are therefore being developed for the separation of monetary policy and supervisory functions: The units involved in decision-making will be clearly separated. We are putting in place an organisational set-up whereby the information flow between the two functions will be limited to a ‘need to know’ basis. However, we will avoid unnecessary duplication of structures not involved in the decision-making process.”

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