• ECB seeks transparency it vows support to economy
     | July 04,2014
    ap photo

    President of European Central Bank Mario Draghi is on his way to a news conference in Frankfurt, Germany, Thursday, following a meeting of the ECB governing council. The ECB decided to leave its main interest rate unchanged.

    The European Central Bank is overhauling the way it sets monetary policy, saying it will hold fewer meetings and publish minutes on its deliberations — a bid to be more transparent as it vows to keep supporting the economy by any means available.

    After the bank decided to keep its interest rates on hold Thursday, President Mario Draghi told a press briefing the ECB remains committed to take more action to help the 18-country eurozone grow faster and emerge from a period of dangerously low inflation.

    To help investors understand the ECB’s thinking behind such decisions, Draghi said that, starting in January, minutes will be published, a move that brings the bank in line with other major central banks. Some investors had asked for greater transparency from the ECB over the past few years, when uncertainty was high in markets amid the financial crisis.

    Draghi added that from next year, monetary policy will be set every six weeks, instead of every month. That, he said, would help reduce market volatility by traders looking for action that is not always merited by economic fundamentals such as growth and inflation.

    “Maybe we should move to a 6-month schedule,” Draghi quipped.

    The ECB’s policy timetable will be very similar to that of the Federal Reserve, which meets eight times a year, usually every six weeks. Draghi stressed that the ECB would not be synchronizing its meetings.

    Marc Ostwald, a senior strategist at ADM Investor Services International, noted that the publication of the minutes may, however, undermine Draghi’s aim to have less market volatility.

    “With 8 meetings a year and an additional 8 meeting minutes release dates, the fact is that there will in principle be more, rather than less ‘event risk’ surrounding ECB policy,” he said.

    Draghi on Thursday also fleshed out details of the ECB’s latest plan to flood commercial banks with up to 1 trillion euros ($1.36 trillion), one of the measures it announced last month, along with interest rate cuts, to help the economy and nudge up inflation. One of the problems afflicting the eurozone is that banks often hold back from lending to businesses and households.

    Draghi said the program of loans to banks will help drive inflation back to the target of just below 2 percent from 0.5 percent currently. Under the program, banks can bid for the loans on a quarterly basis, either alone or in a group with other banks. That money would have to be lent to businesses, in the hope of boosting investment.

    Draghi said the recovery in the eurozone remained moderate and that inflation was subdued, but claimed long-term inflation expectations were “firmly anchored.”

    “Geopolitical risks, as well as developments in emerging market economies and global financial markets, may have the potential to affect economic conditions negatively, including through effects on energy prices and global demand,” Draghi said. Markets have been shaken recently by violent clashes in Ukraine and Iraq as well as gyrations in fast-growing economies like Brazil and Turkey.

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