European Central Bank will ‘do what we must’ to lift inflation: Draghi

ECB chief Mario Draghi said today the bank will “do what we must” to lift inflation as quickly as possible, in a new sign it could boost its anti-deflation defences.

The ECB’s governing council will next meet in early December.

The account says that “the view was put forward” that a case for more action could be made “already at the current meeting”. It could increase the size of its 1.1 trillion euro ($1.2 trillion) program of bond purchases, which pumps newly printed money into the economy.

The ECB’s president added that the bank might change the level of its deposit rate – now negative in a bid to encourage banks to lend.

Even though recent USA data has been mostly positive – more than enough for the likelihood of a 0.5% rate hike to rise to 72% – investors noted the cautious tone taken by policymakers, who were careful not to be seen promising a rise.

By mid-morning trading, the euro fell 0.3 percent against the dollar to $1.0695, and was down 0.4 percent versus the yen at 131.30 yen.

Under the current purchase program, European Central Bank (ECB) is pursuing as per key capital contribution, which means Bundesbank need to execute largest share of around €10 billion per month.

The U.S. economy – given its scale – is less vulnerable to the slowdown in China that has hit confidence in Europe and many emerging markets.

Concerns have been mounting in regards to the Eurozone’s persistently low inflation rate of 0.1 percent, particularly given the region’s stagnant economic growth and low oil prices.

“The euro, which closely tracks the German bund, fell across the board, not just against he dollar, after Draghi’s comments”, said Boris Schlossberg managing director of G-10 currency strategy BK Asset Management.

“With the European Central Bank easing policy, I would be very surprised if the euro didn’t fall through parity”, Mark Burgess, chief investment officer at Columbia Threadneedle Investments, told the Reuters Global Investment Outlook Summit on Friday. The ECB’s move, likely to happen on December 3, is likely to weaken the euro and strengthen the dollar, while the Fed could give the dollar even bigger boost on December 16.

Weidmann also warned of the risk that governments could get used to the low interest rates and be lulled into not undertaking real reforms. USA stocks were poised to open higher.

Sterling rose towards a three-month high against the euro and on a trade-weighted basis on Friday, as investors stepped up sales in the single currency after European Central Bank President bolstered expectations of further easing in the near term.