Adjustments to European Central Bank's monetary policy will be predictable and made at a measured pace, the bank's President Mario Draghi said, noting that inflation was still below the bank's target, and that risks were posed by U.S. trade measures and a strong euro.
"Adjustments to our policy will remain predictable, and they will proceed at a measured pace that is most appropriate for inflation convergence to consolidate, taking into account continued uncertainty about the size of the output gap and the responsiveness of wages to slack," Draghi said in his opening address at the annual ECB watchers conference in Frankfurt.
"There are still two risks to the outlook that could — if they intensify — conspire to reduce our confidence in the inflation path," he added, mentioning possible spillovers from U.S. trade tariffs and a euro appreciation which he said could not be explained solely by the eurozone's economic expansion.
This might weigh on inflation down the line as it does not fully arise from stronger euro area fundamentals. So this is a development we need to monitor closely," he said.
Draghi's comments came after the ECB dropped the pledge to buy more bonds if necessary from its policy guidance March 8, in a step toward normalizing its historically loose monetary policy.
"The performance of underlying inflation remains subdued compared with previous recoveries," Draghi said.
The euro fell after his remarks, losing 0.3% to $1.2358 by 3:15 p.m. in Frankfurt.
The ECB expects inflation to be 1.4% in 2018 and 2019.
According to a note by ING Research, the speech showed "how undecided the ECB still is when judging whether inflation in the eurozone is really likely to accelerate sustainably."
"Today’s speech also gave a good impression of how hard it currently is for central bankers to assess whether economies are in the middle of a structural break, in which economic textbooks can simply be thrown away, or whether this time is really no different," ING said.
