The regulator is ready for state support with an eye on inflation

Following the meeting of the European Central Bank, its head, Mario Draghi, announced the regulator’s readiness to resort to additional tools to combat inflation. The euro exchange rate reacted sharply to the regulator's statements, falling to a two-year low against the US dollar - $1.2396/€. In Russia, the euro lost 48 kopecks, falling to 57.26 rubles/€.

ECB President Mario Draghi
Photo: Kai Pfaffenbach, Reuters

As market participants expected, at the meeting of the European Central Bank (ECB), the base rate was kept unchanged at 0.05%. At a press conference, Mr. Draghi confirmed the parameters of the asset purchase programs that started in mid-October. “The programs will last at least two years. Together with a series of targeted long-term lending programs (TLTRO) of banks that will be carried out until 2016, these purchases will have a significant impact on our balance sheet,” said Mario Draghi. According to his estimates, the volume of assets on the balance sheet of the regulator will return to the level of 2012 as a result of the implementation of new programs. Thus, we can talk about increasing state support by about €1 trillion, up to €3.1 trillion.

However, if necessary, the ECB is ready to apply additional measures to combat inflation and has already instructed bank staff and experts to develop options for such measures, Mario Draghi said during the conference. “If the need arises to further address the risks of too long a period of low inflation, the Governing Council is unanimously prepared to use additional non-traditional instruments within its mandate,” the ECB head said today.

The results of the ECB meeting influenced the dynamics of the European currency. The euro, which had been trading above Wednesday's close for most of the day, fell 1% to $1.2396/€ after Mario Draghi's press conference. Thus, the European currency updated its two-year minimum. At trading on the Moscow Exchange, the euro exchange rate decreased by 48 kopecks, to 57.26 rubles/€.

Vitaly Gaidaev

Why does the ECB turn on the printing press?

In October, the European Central Bank (ECB) began purchasing assets to combat deflation in the euro area; the program will be fully launched before the end of this year. The ECB still refrains from directly purchasing government bonds, however, even within the framework of already announced measures, the total support for banks and markets could exceed €1 trillion. Read more

The ECB did not hold the euro