Investing.com – European Central Bank (ECB) president Mario Draghi suggested on Wednesday that there would be no changes to monetary policy in the euro are at the upcoming meeting on June 8.
“Our current assessment of the side effects suggest therefore that there is no reason to deviate from the indications we have been consistently providing in the introductory statement to our press conferences,” Draghi said at the First Conference on Financial Stability organized by the Bank of Spain and Centro de Estudios Monetarios y Financieros and attended by Investing.com in Madrid on Wednesday.
The ECB left interest rates unchanged at its last meeting in April and maintained its promise to continue monthly asset purchases of €60 billion ($67.2 billion) “until the end of December 2017, or beyond, if necessary”.
At that time, the ECB considered that the euro zone economy was becoming “increasing solid” and that downside risks had “further diminished”, while underlying inflation pressures continued to “remain subdued”.
With regard to the current accommodative monetary policy in the euro zone, Draghi noted that there could be “potential negative side effects”, but considered those to have “remained contained.
Draghi further insisted that the ECB’s current macroprudential framework coupled with stronger financial institutions and bank supervision “has enabled us a longer period of low interest rates unmarked by a build-up of financial stability risks.”
“Nonetheless, we remain vigilant,” he added.
Draghi gave a fairly upbeat assessment of financial stability developments with regard to banks in the euro area.
“We see no evidence of a widespread development of credit-fueled bubbles,” he commented, adding that there were few signs of banks taking on excessive risk in their lending policies.
Although Draghi’s speech did not discuss in detail other risks to the euro zone, the ECB’s latest Financial Stability Review (FSR), also released on Wednesday, pointed to significant repricing risks in fixed income markets.
“In the euro area, this could materialize via spillovers from higher yields in other advanced economies, in particular the United States,” the report indicated.
The FSR further noted persisting structural vulnerabilities for euro area banks and continued political uncertainty, although Brexit, as the U.K.’s departure from the European Union is known, was “not expected to pose significant financial stability risk to the euro area.”
The euro/dollar showed no reaction to Draghi’s speech which was in line with market expectations as investors also remained cautious ahead of the publication of the minutes of the Federal Reserve’s most recent policy meeting on Wednesday at 2:00PM ET (18:00GMT).
Inflation data for the euro area will be released on May 31, but appeared unlikely to sway Draghi’s stance from his remarks given Wednesday.
Consensus is looking for headline inflation to move up to 1.96%, near the ECB’s target of “close to, but below 2%”.
However, core inflation is forecast to remain far below at just 1.4%.