FRANKFURT (Reuters) - The head of the European Central Bank pledged on Wednesday to roll out its money-printing program ‘firmly’ and granted continued backing for Greece, saying there was no need yet to limit emergency funding for its banks.
Describing speculation that the fledgling 60 billion euro a month scheme would be scaled back as “surprising”, Mario Draghi underlined his determination to see through quantitative easing until September 2016, or until inflation was back up to target.
“Our focus will be on the full implementation of our monetary policy measures,” Mario Draghi told a news conference after the ECB left interest rates at record lows.
At the last count, euro zone inflation was running at -0.1 percent. The ECB’s target is below but close to 2 percent.
“Through these measures we will contribute to a further improvement in the economic outlook,” Draghi said, predicting that the economy would ‘strengthen gradually’.
Draghi’s news conference was interrupted when a young woman sitting in the front row among journalists leapt onto the podium, shouting ‘end the ECB dictatorship’.
She showered confetti as she stood over Draghi, who held his hands above his head before she was taken away by security guards. Recent violent protests in Frankfurt targeted the ECB for the spending cuts demanded in Greece and elsewhere.
The ECB’s main refinancing rate, which determines the cost of credit, is now just 0.05 percent, while the ECB’s deposit rate, which means banks pay to park funds at the central bank and has the most influence on market rates, is -0.2 percent.
Draghi said the deposit rate would not fall any lower. This sets a floor on which bonds it can buy as the ECB has said it will not buy bonds with a yield lower than -0.2 percent - matching the rate on overnight deposits made by banks.
Draghi said help for cash-strapped Greece was an issue firmly in the hands of the Greek government, which has yet to produce an acceptable program of economic reforms to unlock euro zone funds.
But he also said there was no immediate prospect of cutting off Greek banks’ access to funding.
ECB policymakers sanctioned further Emergency Lending Assistance (ELA) for Greece’s banks of up to 74 billion euros, a banking source said on Tuesday, a reminder of the dire financial straits that the country is in.
“We approved ELA and we’ll continue to do so, extend the liquidity to the Greek banks while they are solvent and they have adequate collateral,” Draghi said, adding that there was no end date for such emergency assistance.
Time is running out for Athens to improve a package of reforms required for the release of loans that it requires to stay afloat.
Draghi’s comments, when asked about the possibility of a Greek default, betrayed his heightened concern.
“I don’t even want to contemplate that,” he said.
Were Greece, first bailed out in 2010 and again two years later, ultimately to tumble out of the euro, it would deal a blow to the credibility of the currency union.
For now though, the 1 trillion-euro-plus money printing scheme to buy chiefly government bonds is underpinning confidence.
“The implementation of our asset purchase program is proceeding smoothly,” said Draghi.
“There is clear evidence that monetary policy measures ... are effective. Financial market conditions and the cost of external finance for the private sector have eased considerably.”
The QE program has already prompted a rise in the value of bonds and investors are questioning whether it could become too costly for the ECB to buy sufficient quantities in top-rated countries such as Germany.
Draghi said there were plenty of bonds to buy. “We don’t see any problems,” he said. “Our program is flexible enough in any event to be adjusted if circumstances were to change.”
($1 = 0.9389 euros)
Additional reporting by Marc Jones in Frankfurt and George Georgiopoulos in Athens. Writing by Mike Peacock and John O'Donnell. Editing by Jeremy Gaunt