European Central Bank (ECB) President Mario Draghi said the bank needed to be careful about announcing an end to its bond-purchase program.
“The markets are still vulnerable, and so we have to be very careful about announcing the end of such an instrument,” Draghi told the Frankfurter Allgemeine Zeitung in an interview, according to a text provided today by the ECB. “The Securities Markets Program has served a purpose since it was introduced.”
The Frankfurt-based ECB’s bond purchases have dwindled this year, grinding to a complete halt last week, as falling bond yields across the 17-nation euro region lessened the need for the central bank to intervene.
The bond program, unveiled in May 2010 to calm markets spooked by the sovereign-debt crisis, has split ECB policymakers, with some saying it blurs the line between monetary and fiscal policy.
The ECB’s provision of three-year loans to banks has helped to calm markets and reduce the need for bond buying.
“The impact of the three-year tender was underestimated when I announced it in December, because many people expected the ECB to expand its government bond purchases, the famous ‘bazooka,’” Draghi told the newspaper. “Maybe I should have called the tender ‘Big Bertha’ when I announced it, then everyone would have listened.”
Draghi said the additional liquidity was not fueling inflation.
“There is no sign of inflationary tendencies in the euro area, quite the opposite,” he said. “And if there should be any sign of future inflation, we have the instruments with which to absorb the liquidity again within a short space of time.”
While the ECB has relaxed collateral rules to increase banks’ access to its loans, Draghi said he was not in favor of loosening them any further.
“We have done enough,” he said. “In future, based on the current outlook, it will rather be a question of tightening the requirements again.”
The economic situation has “stabilized” and positive signs have increased in the past two weeks, “although uncertainty remains high,” Draghi said.
Asked if Europe is at risk of a “lost decade” of very low growth, Draghi said: “No. What makes me confident are the reforms that have been started in Europe in the past four or five months.”
A second bailout for Greece will be successful, he said, as long as implementation of the reform program is “flawless.”
Draghi said collective action clauses may be needed to ensure a sufficient level of participation among private creditors in a Greek debt restructuring.