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The backdrop to Thursday’s policy meeting, where the Governing Council kept its interest rates on hold after cutting them to record lows in March, was colored by a row stepped up by Germany’s Wolfgang Schaeuble. Draghi deployed a volley of arguments against the finance minister’s charge that ECB policies are contributing to the rise of anti-euro populism, and the broader assumption that savers are being penalized, adding that Schaeuble either “didn’t mean what he said or didn’t say what he meant.”
“In fact real rates today are higher than they were about 20-30 years ago,” Draghi said. “But I’m aware that to explain real interest rates to savers may be difficult.” [...]
“We are independent, so we’ll continue in the course of policy action that we consider appropriate,” Draghi said on Thursday. “Any time the credibility of the central bank is perceived as being put into question, the result is a delay in the achievement of its objective and therefore the need of more policy expansion,” he said, raising his voice.
German Chancellor Angela Merkel later backed the ECB’s independence, while saying a political debate about its strategy is “legitimate.” Draghi also won backing from International Monetary Fund Managing Director Christine Lagarde on Friday, who said in Amsterdam that “we all agree” the central banks should be independent.
That jealously-guarded autonomy has always stood in the context of the ECB’s delivery of its legal mandate, price stability. For Draghi, being able to show that unemployment is falling and the output gap is closing - they are - may prove vital in reassuring the public that inflation targets won’t endlessly be postponed.
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Inflation is forecast by the ECB to average to just 0.1 percent this year and climb to 1.6 percent by 2018, based on the most recent ECB macroeconomic forecasts in March. Output will expand 1.4 percent this year and climb to 1.8 percent growth by 2018.
Keeping even to those modest targets may still require more stimulus as the risks to the outlook are on the downside, according to the ECB. The current stretched state of policy - a deposit rate below zero and bond purchases now expanded to corporate debt - has led to a debate about the need for “helicopter money” from the central bank to finance fiscal spending if another shock comes along. Draghi dismissed that idea, but also insisted that officials are ready to use any tool within their mandate.