European Central Bank is Ready to Act if Need Be

By TraderVox.com

Tradervox (Dublin) – Mario Draghi, the European Central Bank President has indicated that the bank is ready to act if the inflation risk persists. He said this as he assured investors that the ECB will continue with its stimulus plan until the economy completely recovers. Draghi told investors that all the necessary mechanisms are in place to counter any upside risk to stability of the economy. Draghi, as he addressed reporters in Frankfurt, indicated that ECB would hold interest rates at one percent but added that it was too early to talk about ECB exit strategy. He expressed concerns about the imminent risk in the economy as well as the inflation which has to be contained.

Europe is faced with a major debt crisis which has affected big economies such as Spain and Italy. Greece has had to be rescued twice from near default and unemployment rate in some European countries are hitting record high. As such, ECB is seen as trying to balance threat of inflation in leading economies such as Germany and the battle against the sovereign debt crisis. Draghi also said that the ECB is keeping a close eye on the energy prices and wages to read signs of any risk as early as possible. Apart from the sovereign debt crisis, Draghi assured investors that Euro area will have a modest growth that is anchored in long term inflation expectations which would keep price pressures limited.

Concerns about inflation have come at a time when ECB has pumped into the economy more than 1 trillion Euros in three year loans to financial institutions in the region as efforts to fight off any credit crunch. Mario Draghi said that the LTROs have avoided a major credit crunch in the region as he talked about the decision to keep the interest rates at a record low of 1 percent. However, he said that the meeting did not talk about another LTRO as this is a complex process and needs some time to be considered and to analyze the effects of the current LTRO.

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