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Chairman Powell

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Resumes Its Downtrend

By Luke Heighton
     SINTRA (MNI) - The European Central Bank recently discussed restarting its
sovereign bond purchase programme and would consider increasing limits on its
purchases of individual countries' debt, Mario Draghi signalled today.
     The asset purchase programme "still has considerable headroom," he told an
ECB forum in the Portuguese city of Sintra. "Moreover, the Treaty requires that
our actions are both necessary and proportionate to fulfil our mandate and
achieve our objective, which implies that the limits we establish on our tools
are specific to the contingencies we face."
     "Further cuts in policy interest rates and mitigating measures to contain
any side effects remain part of our tools."
     The ECB's Governing Council last voted to raise the issuer limit of 25%
established in March 2015 to 33% six months later, following a review. A 50%
issuer and issue share limit applies to supranational bonds under the ECB's
public sector purchase programme.
     "Looking forward," Draghi said, "the risk outlook remains tilted to the
downside, and indicators for the coming quarters point to lingering softness.
     "In the absence of improvement, such that the sustained return of inflation
to our aim is threatened, additional stimulus will be required.
     "In the coming weeks, the Governing Council will deliberate how our
instruments can be adapted commensurate to the severity of the risk to price
stability."
     The ECB stands ready to "enhance our forward guidance by adjusting its bias
and its conditionality to account for variations in the adjustment path of
inflation," Draghi added. "This applies to all instruments of our monetary
policy stance. All these options were raised and discussed at our last meeting."
     The ECB president also called on fiscal authorities to play a great role in
boosting growth, and said that "the burden of macroeconomic adjustment has
fallen disproportionately on monetary policy. We have even seen instances where
fiscal policy has been pro-cyclical and countered the monetary stimulus."
--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com
--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com
[TOPICS: M$X$$$,MC$$$$,MT$$$$,M$$EC$]