From 'whatever it takes' to 'as quickly as possible'.
Photograph by Francois Lenoir — Reuters
By Geoffrey Smith
November 20, 2015

The world’s two most important central banks are going separate ways.

As the Federal Reserve drops increasingly heavy hints about raising interest rates for the first time in nearly a decade, European Central Bank President Mario Draghi all but pre-announced a new round of stimulus for a Eurozone economy that is still flirting with deflation.

In a closely-watched keynote speech at a banking conference in Frankfurt, Draghi dropped his clearest hint yet that the ECB will expand its program of asset purchases, which depresses interest rates by injecting money into the financial system, and may also push its official deposit rate even further into negative territory, from its current record low of -0.20%. The latter move would be particularly radical, and has been bitterly resisted by banks who claim it effectively forces them to make losses. But the ECB’s chief economist Peter Praet said in an interview earlier this week that the evidence suggested it hadn’t had a negative impact so far.

The ECB’s governing council is due to meet next on Dec. 3, two weeks before the Federal Open Market Committee Meeting where the Fed is expected to raise its official interest rates.

Draghi said:

“If we decide that the current trajectory of our policy is not sufficient to achieve our objective, we will do what we must to raise inflation as quickly as possible. If we decide that the current trajectory of our policy is not sufficient to achieve our objective, we will do what we must to raise inflation as quickly as possible.” (Emphasis ours)

Speculation on further easing has been growing since Draghi’s last press conference in October, when he expressed concern about fresh risks to the economy from the slowdown in China and other emerging markets, and about the stubborn refusal of inflation to come back to its targeted level of just under 2%. Thanks to low oil prices, consumer prices in the Eurozone have barely changed all year, and were up only 0.1% in the year to October. Gross domestic product, meanwhile, grew only 0.3% in the third quarter, down from 0.4% in the summer.

The euro has already lost nearly 6% against the dollar since Draghi’s October press conference, and is already trading close to the 12-year low it posted back in March. Having already made such a big move, it was largely unchanged against the dollar after Draghi’s remarks Friday at $1.0690.

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