Top eurozone banker suggests rates could stay low for longer

November 16, 2018 - 5:11 am

FRANKFURT, Germany (AP) — The head of the European Central Bank warned Friday that slowing world trade is proving to be a drag on the eurozone economy but said the current expansion remains "resilient" as consumers remain willing to spend and unemployment falls thanks to pro-business reforms.

ECB President Mario Draghi said the bank wasn't changing its plan to phase out a 2.5 trillion-euro ($2.8 trillion) bond-buying stimulus program at the end of the year. But he indicated that the central bank could respond to unexpected weakness by putting off interest rate increases longer than planned.

"There is certainly no reason why the expansion in the euro area should abruptly come to an end," Draghi said in a speech in Frankfurt. A gradual slowdown was "normal" as economic expansions mature, he said.

He noted that recently weaker growth figures have also been affected by one-off factors such as strikes and disruption from carmakers failing to get vehicles certified under new emissions tests.

Draghi said the bank was sticking with its plan to phase out its bond purchase stimulus program, in which it effectively injects new money into the economy, at year-end. The bank has said interest rates will remain at their current record lows until at least "through the summer" of 2019.

But Draghi added that the nature of this guidance is contingent on economic developments.

The bank's benchmark interest rate for lending to banks is zero, and it imposes a minus 0.4 percent rate on deposits that it takes from commercial banks. The negative rate is a penalty aimed at pushing banks to lend excess funds rather than let them pile up at the central bank.

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