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Draghi Says ECB Will Act If Market Turmoil Threatens Outlook

Draghi Says ECB Will Act If Market Turmoil Threatens Outlook

The European Central Bank will take measures to ensure its monetary policy reaches the real economy if that appears threatened by financial-market turbulence, President Mario Draghi said.
“In the light of the recent financial turmoil, we will analyze the state of transmission of our monetary impulses by the financial system and in particular by banks,” Draghi told European Parliament lawmakers in Brussels on Monday. In addition, the ECB will examine the impact of renewed declines in energy prices and “if either of these two factors entail downward risks to price stability, we will not hesitate to act,” he said.

The Frankfurt-based ECB faces its next policy decision on March 10 at a time when price gains in the currency bloc are far below the central bank’s goal of just under 2 percent, depressed by slowing global growth and an energy supply glut. Bank-led equity sell-offs in the past week now threaten to choke off a fragile recovery in credit and stymie the euro area’s recovery.
Referring to the global economy, Draghi said that “a continuation of the rebalancing process is needed to secure sustainable growth over the medium term.” He also said this “could imply some headwinds in the short term, which will require close monitoring of the related risks.”

Bank Outlook
Draghi underlined the ECB’s efforts since 2014 to repair confidence in the region’s banking sector.
“The fall in bank equity prices was amplified by perceptions that banks may have to do more to adjust their business models to the lower growth/lower interest-rate environment and to the strengthened international regulatory framework that has been put in place since the crisis,” he said. “However, we have to acknowledge that the regulatory overhaul since the start of the crisis has laid the foundations for durably increasing the resilience not only of individual institutions but also of the financial system as a whole.”
He also said euro-area banks are in a “good position” to bring down non-performing loans in an orderly manner over the next few years.

Source : Bloomberg