European Central Bank President Mario Draghi defended the use of negative interest rates in monetary policy during his final press conference in Frankfurt, adding he was proud of the fact that he and his colleagues have always pursued their mandate for maintaining a 'just below 2%' inflation rate.
Draghi, whose eight year term at the helm of the central bank ends next week without ever having raised interest rates, said the charge applied to overnight deposits, which was increased to 0.5% last month, has had a positive effect on the broader economy. Draghi said the move was, in part, designed to "cement" the accommodative stance the ECB has adopted since the global economic downturn triggered by U.S.-China trade tensions, but has nonetheless moved the Eurozone "in the right direction".
"The overall assessment has clearly been positive," Draghi said, dismissing concerns for the concurrent impact of negative interest rates on bank profits by noting the ECB's move to tweak some of its negative rates to allow for additional lending. "The improvements in the real economy have more than offset any negative side-effects."
Mario Draghi's ECB presidency (2011-2019):— Frederik Ducrozet (@fwred) October 24, 2019
8 rate cuts; 0 rate hikes
10 QE announcements (incl. changes in size, duration, rules)
6 (T)LTRO announcements
€2.6 trillion asset purchases; balance sheet doubled pic.twitter.com/RTAo440YwM
Draghi also refused to consider any regret for the fact that ECB policy has had to shift back towards its extremely accommodative stance, arguing that while that while the prospect of a so-called hard Brexit has receded, global conditions have continued to weaken and risks remained tilted to the downside.
"What prevails over everything else is our determination to purse the mandate under which this institution was created," Draghi said, referencing the 'just below 2%' inflation rate target. "The paradigm of reference has changed. Until not long ago, the IMF and other observers would say that while interest rates are low, they will ultimate go up."
"The consensus now is that they will stay low for a very long time, and this implies that the exit from extraordinary monetary policy will take some time as well."
Draghi and his colleagues on the ECB's Governing Council, the effective equivalent to the Federal Reserve's Open Markets Committee, left all three of their key interest rates unchanged Thursday, while pledging to continue to buy €20 billion each month in government, agency and corporate bonds until Eurozone inflation, which currently sits at just 0.9%, "robustly converges" to the ECB's target.
Christine Lagarde, the former managing director of the International Monetary Fund, takes over as ECB President on November 1.
"The risks surrounding the euro area growth outlook remain on the downside," Draghi said in his opening statement. "In particular, these risks pertain to the prolonged presence of uncertainties, related to geopolitical factors, rising protectionism and vulnerabilities in emerging markets."