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MNI REVIEW: Exit the Draghi, As ECB Unchanged

By Luke Heighton
     FRANKFURT (MNI) - Mario Draghi became the first European Central Bank
president never to raise key interest rates, Thursday, as the Governing Council
kept monetary policy unchanged following its September package announcement.
     Incoming data since the last meeting confirmed the ECB's assessment of
protracted weakness in growth dynamics, said Draghi, who will step down at the
end of the month, and will be succeeded by Christine Lagarde. But ongoing
employment growth and increasing wages continue to underpin resilience to
prominent downside risks and muted inflation pressures.
     Draghi downplayed the depth and breadth of division among Governing Council
and Executive Board members over last month's controversial decision, the
aftermath of which saw prominent central bank governors publicly break ranks.
Draghi said he himself did not intervene in response to critical statements from
Klaas Knot, of the Netherlands, and Bundesbank chief Jens Weidmann, among
others, and that today's decision had passed "basically unanimously." One of
September's dissenters even called for a greater show of unity, and another said
it was time to "let bygones be bygones," Draghi said.
     The main threat to financial stability, he said, is a downturn in the
economy, "whether it is global or in the euro zone." "The lower likelihood of a
hard Brexit has improved the situation, but the uncertainty is still there," he
     The fall in the natural rate of interest rates meant that rates were likely
to remain low for a long time he said.
     "The paradigm of reference has changed. Interest rates will stay low for a
long time, so the exit from unconventional monetary policy has shifted in time."
     Asked whether the ECB would need to adjust its sovereign bond-buying
threshold of a maximum 33% of stock in order to facilitate quantitative easing
in the medium-term, Draghi said that it would take "quite a bit of time before
issuer limits become a problem." Moreover, any such estimate relies on
assumptions about net issuance, and therefore fiscal policy."
     Draghi reiterated that the overall assessment of the ECB's negative rates
"is positive. The improvements in the economy have more than offset the negative
side effects." However, "in order to reap the full benefits from our monetary
policy measures, other policy areas must contribute more decisively," he
continued. If one wants to see higher rates sooner, fiscal policy should be
     Euro area real growth GDP growth stood at 0.2%, quarter on quarter, in Q2
2019, following a 0.4% increase the previous quarter, with incoming economic and
survey data pointing to "moderate but positive" growth in the second half of
     Annual HICP inflation fell from 1.0% in August 2019 to 0.8% in September,
with Draghi saying that events and data since the Governing Council's Sept. 12
decision showed they were justified in taking "decisive" action.
     Draghi said the fact Greece had recently sold short-term debt at a negative
yield should be considered a success for the ECB's strategy, given that the
country had to be bailed out only years ago.
     He described Germany's Isabel Schnabel, recently named as Sabine
Lautenschlaeger's replacement on the Executive Board, as "an excellent
economist. She has all the capacities to do very, very well. We should welcome
her nomination very warmly."
--MNI Frankfurt Bureau; +49-69-720-146; email:
--MNI London Bureau; +44 203 865 3829; email:
[TOPICS: MT$$$$,MX$$$$]

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