FRANKFURT – European Central Bank head Mario Draghi is underlining the bank’s willingness to add more monetary stimulus if needed at its December meeting to push inflation higher.
Draghi told members of the European Parliament in Brussels on Thursday that signs of a turnaround in low inflation “have somewhat weakened.”
Low annual inflation — currently zero in the 19 countries that use the euro currency — points to weak demand and makes it harder for indebted companies and countries to recover.
The ECB is purchasing 1.1 trillion euros ($1.2 trillion) in bonds with newly printed money through September, but inflation remains low. Draghi said at the ECB’s last policy meeting on Oct. 22 that the bank would review whether more stimulus was needed.
The euro dropped on Draghi’s remarks, falling to $1.0700 from $1.0745.
The euro has fallen as monetary policy takes different paths in Europe and the United States. The ECB is favouring looser monetary policy — just as the U.S. Federal Reserve contemplates tightening by raising its interest rate benchmark after years of near zero interest rates.
Higher rates on dollar-denominated investments — compared to lower rates for euro investments — mean more demand for dollars compared to euros. That pushes down on the euro’s exchange rate against the dollar.
The next ECB meeting is Dec. 3, while Fed officials meet Dec. 17. But currency traders are already anticipating more stimulus from the ECB and less from the Fed.
A lower euro would help eurozone exporters, supporting growth, and would also raise inflation by increasing the price of imports.
