Draghi Orders ECB to Review QE Program Amid Bond Scarcity

(Bloomberg) -- Mario Draghi said European Central Bank officials will study options to ensure their quantitative-easing program doesn’t run out of bonds to buy as he played down the need to commit to new stimulus for now.

“The assessment was that for the time being the changes are not substantial as to warrant a decision to act,” the ECB president said at a press conference in Frankfurt on Thursday. “The main theme was to make sure that the program and decisions we took in March can be implemented in the new constellation of interest rates, which clearly have restricted the eligibility universe.”

With six months to go until the scheduled end of its QE program, the ECB needs to balance increasing concerns about asset scarcity with signs that the region’s recovery is losing momentum. The central bank has missed its target of keeping inflation just under two percent for over three years and doesn’t foresee reaching it before late 2018.

The 25-member Governing Council earlier kept its main refinancing rate at zero, the deposit rate at minus 0.4 percent and asset purchases at around 80 billion euros ($90 billion) a month until March 2017, as predicted in a Bloomberg survey. Draghi denied that officials discussed an extension of the stimulus during their meeting, and declined to give a view on so-called helicopter money because they haven’t talked about it either.

‘Full Mandate’

“The Governing Council tasked the relevant committees to evaluate the options that ensure a smooth implementation of the purchase program,” Draghi said, without divulging further details of what they might consider. “The committees have full mandate. They will look at all the options that might be used to redesign the program, and then of course we’ll have a discussion in the Governing Council.”

While he stressed that policy makers didn’t discuss the possibility of extending the duration of QE beyond its scheduled end of March 2016, the ECB president reaffirmed the Governing Council’s “unanimous” commitment to carry out current stimulus until it sees a “sustained adjustment in the path of inflation consistent with its inflation aim.”

The ECB confirmed its outlook for price growth in 2018 at 1.6 percent, while slightly cutting the 2017 outlook to 1.2 percent from 1.3 percent. It also revised down forecasts for euro-area growth in 2017 and 2018 to 1.6 percent from 1.7 percent, while raising the prediction for the current year to 1.7 percent from 1.6 percent.

“We see that our monetary policy is effective, we see that its full impact is now in the macroeconomic projections, but we also see that there have been considerable decreases in all interest rates,” Draghi said. “Available evidence so far suggests resilience of the euro area economy to political and economic uncertainties.”

Growth in the region slowed to 0.3 percent in the second quarter after expanding 0.5 percent in the three months through March. Inflation was just 0.2 percent in August, lower than anticipated and unchanged from July. A purchasing-managers survey by IHS Markit signaled economic activity in the 19-nation bloc was at its weakest in 19 months.

“We continue to expect to continue real GDP to grow at a moderate but steady pace,” Draghi said in his opening statement. “The economic recovery in the euro area is expected to be dampened by subdued foreign demand, partly related to uncertainty surrounding U.K. referendum.”

To contact the reporter on this story: Alessandro Speciale in Frankfurt at aspeciale@bloomberg.net. To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Craig Stirling, Mark Deen