European Central Bank President Mario Draghi said on Thursday that policymakers were confident regarding the economy and that the inflation is gradually approaching its aim of "below, but close to 2 percent".
Draghi also expressed confidence that his home country Italy and the European Commission would reach an agreement over budget finances. He also urged the private sector to prepare for a hard Brexit, saying such an event could cause "financial uneasiness". Earlier on Thursday, the central bank left its key interest rates unchanged for a third consecutive policy session and reaffirmed that it plans to end its massive asset purchase plan, in place since 2015, by the end of December.
"The risks surrounding the euro area growth outlook can still be assessed as broadly balanced," Draghi said in his introductory statement to the post-decision press conference in Frankfurt. "At the same time, risks relating to protectionism, vulnerabilities in emerging markets and financial market volatility remain prominent."
The bank expects underlying inflation to pick up towards the end of the year and to increase further over the medium term, supported by monetary policy measures, the ongoing economic expansion and rising wage growth. "An ample degree of monetary accommodation is still necessary for the continued sustained convergence of inflation," Draghi said. Answering reporters' questions, Draghi acknowledged that there was weaker momentum in the euro area economy as suggested by weaker survey data. However, these were not enough to make the ECB change the baseline scenario, he said. Citing the pick-up in negotiated wages and expansion in the labor market, Draghi said, "We should have no doubt about our confidence that inflation is gradually reaching our aim". Regarding the winding-down of the EUR 2.5 trillion asset purchase plan at the end of December, Draghi said policymakers will only discuss future measures only when they are equipped with the next round of macroeconomic projections.
A right mix of forward guidance and asset purchases has served the ECB very well, the ECB Chief noted, adding that credible forward guidance reduces uncertainty. Draghi also said that central bank independence was crucial for the effectiveness of monetary policy. The Governing Council did not discuss the adjustment of the capital key, Draghi said, adding that he would be surprised if the ECB was to use a different concept for asset purchases. The ECB is closely monitoring Brexit talks, Draghi said. "If the lack of solutions in the negotiations around Brexit continues and remains as the end date gets closer, the private sector itself will have to prepare for a hard Brexit... I would not call it a big financial stability risk, but financial uneasiness," he added.