Daily Management Review

Draghi: Central banks should be open


08/23/2017


Head of the European Central Bank (ECB) Mario Draghi said that although the actions of central banks over the past decade have strengthened the world economy, it is important to maintain openness and readiness for future events, reports Bloomberg.



INSM via flickr
INSM via flickr
In his speech, in which there were no concrete signals about the current discussions on the ECB's policy, Draghi stressed that regulators should be "unencumbered by the protection of pre-existing paradigms that have lost their explanatory power." Speaking to an audience of 17 Nobel laureates and 350 young economists in the city of Lindau in southern Germany, he said that research is still needed to develop a monetary strategy.

"The political response, which is based on deep research, is less prone to distortion as a result of political compromise, and it is easier to explain to the general public," Draghi said. "The political measures taken in the last ten years in the field of monetary policy, regulation and supervision have made the world more stable, but we must continue to prepare for new challenges. "

Draghi’s speech marks the end of a relatively calm summer break. Representatives of the ECB are discussing the prospects of the incentive program before making a decision in the fall. The central bank enters the decisive stage of its battle to restore price stability in the euro area, as economic growth indicators improve, but inflation remains below the target level.

One of the difficulties is to decide how much monetary support is needed, so that the region's recovery becomes sustainable, and how markets and the economy will react to the gradual curtailment of incentives. As reported earlier, inflation in the Eurozone in July remained at the level of the previous month, amounting to 1.3%. This is enough to argue that the risks of deflation have disappeared, but too little to achieve the ECB's goal of "just under 2%."

Investors are likely to follow the signals on Friday, when Draghi will speak at the US Federal Reserve Symposium in Jackson Hole, Wyoming. He will join the Fed Chairman Janet Yellen and other colleagues in discussing how to contribute to the dynamic growth of the economy.

As Draghi said in Lindau, research has shown that innovations such as the ECB's future policy guidelines and a € 2.3 trillion bond buying program, as well as a similar program by the US Federal Reserve, successfully support the economy and inflation. Quantitative easing was particularly criticized in Germany.

"When the world changes, like it was ten years ago, it is necessary to adjust policies, especially monetary policy," he said, adding that "this is obvious to most people, but not to everyone."

After the speech of the head of the ECB, the euro turned and strengthened by 0.2% against the dollar - to $ 1.1785. The euro at the same time increased by 0.4% to the pound sterling, reaching a maximum in this pair in eight years.

source: bloomberg.com






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