Draghi says ECB ready to halt rates rises as Eurozone economy struggles

Mario Draghi has said that the European Central Bank “will adopt all the monetary policy actions that are necessary” to boost the Eurozone economy should it continue to struggle, including further delaying planned interest rate hikes.

Speaking in Frankfurt, Germany, the ECB boss also said that although he thought “growth will gradually return”, the “risks remain tilted to the downside”, signalling that he was pessimistic about the Eurozone’s short term prospects.

The speech, at a conference called The ECB and Its Watchers, came after Draghi’s ECB held its main interest rate at the record low level of 0.00 per cent and changed its forward guidance, saying it will remain at rock-bottom at least to the end of 2019, earlier this month.

Today he said: “Sustained convergence of inflation to our aim has been delayed rather than derailed, meaning that we expect inflation to reach our objective at a later date than we previously foresaw.”

Due to a delay in the pick up of inflation, Draghi suggested the ECB could delay further hikes. “We would ensure that monetary policy continues to accompany the expansion by adjusting our forward guidance to reflect the new inflation outlook,” he said.

The euro rose 0.27 per cent against the dollar following the speech, to hit $1.128.

Draghi also spoke about negative interest rates, which the bank has set for its deposit rate, which banks may use to make overnight deposits with the Eurosystem.

He said: “If necessary, we need to reflect on possible measures that can preserve the favourable implications of negative rates for the economy, while mitigating the side effects.”

He said the best performing banks in a low interest rate environments had reduced their cost-to-income ratios, embarked on large-scale investments in information technology, and diversified their revenue sources.

Russ Mould, investment director at AJ Bell, said: “Mario Draghi said the ECB was ready to further delay a planned interest rate hike if conditions in the eurozone deteriorated. European stock markets were largely unmoved on the comment.”