Draghi Says ECB Will Act In March If Downside Risks Prevail

(RTTNews) - The European Central Bank will take action in March, if downside risks to price stability persist, ECB President Mario Draghi said Monday.

"As we announced at the end of our last monetary policy meeting in January, the Governing Council will review and possibly reconsider the monetary policy stance in early March," Draghi said in Brussels, in the introductory statement of his quarterly hearing before the the European Parliament's Economic and Monetary Affairs Committee.

The ECB's rate-setting body, the Governing Council, is scheduled to hold its next policy session on March 10.

The focus of the Governing Council deliberations in March will be twofold, Draghi said.

Policymakers will examine the strength of the pass-through of low imported inflation to domestic wage and price formation and to inflation expectations, the ECB Chief noted.

They will consider the size and the persistence of the fall in oil and commodity prices and the incidence of second-round effects on domestic wages and prices, he added.

Rate-setters will also analyse the state of transmission of monetary impulses by the financial system and in particular by banks in the backdrop of the recent financial turmoil, Draghi said.

"If either of these two factors entail downward risks to price stability, we will not hesitate to act," Draghi added.

The latest set of ECB Staff economic projections will also be unveiled in March. The report is likely to reveal further downgrade to euro area inflation projections.

Earlier today, Bundesbank cut Germany's inflation projection for this year and next, citing the recent decline in oil prices.

Eurozone recovery is progressing at a moderate pace, supported mainly by monetary policy measures and their favorable impact on financial conditions as well as the low price of energy, the central banker said.

Draghi pointed out that heightened uncertainties regarding the global economy and broader geopolitical risks are weighing on investor sentiment, causing investment to remain weak. He also said that the construction sector has failed to recover thus far.

"In order to make the euro area more resilient, contributions from all policy areas are needed," Draghi said.

"It is becoming clearer and clearer that fiscal policies should support the economic recovery through public investment and lower taxation," he added.

Regarding the slowdown in emerging market economies, Draghi said a continuation of the rebalancing process is needed to secure sustainable growth over the medium term and the process could imply some headwinds in the short term, which "will require close monitoring of the related risks".

Draghi also said that the euro area banks have significantly strengthened their capital positions over the past few years and the quality of the banks' capital has substantially improved.