ECB president Mario Draghi warns of negative spiral
27 May 2014
European Central Bank president Mario Draghi has warned that the bank needed to be on its guard against a "negative spiral" of low inflation that could drag down the economy, AP reported.
He added, the bank could resort to large-scale bond purchases to combat that if needed.
The ECB president's remarks came at a conference in Sintra, Portugal, and served to hold out the prospect for action to stimulate the weak recovery at the ECB's next governing council meeting 5 June.
The meeting would take place against the background of a slow recovery in the 18 countries that shared the euro currency and concern that Europe might fall straight into outright deflation, or a crippling downward price spiral.
According to most economists, the bank would take some kind of action at the June meeting, possible lowering its interest rate from what was already a record low of 0.25 per cent.
The cut would see a marginal drop in the cost of credit when banks borrowed from the ECB, in hopes they would pass such lower rates on to business and consumers.
According to commentators, the ECB could also impose a negative interest rate on money that banks deposited with it, pushing them to lend it instead of hoard it.
Meanwhile, European economics correspondent for The International New York Times, Jack Ewing aid in column that the European Central Bank's mandate was to keep inflation in a cage initially. However, this turned out to be much more complicated than earlier thought.
An elite group of policy makers and economists gathered this week at a resort, outside Lisbon to sort out the issues the central bank faced amid the euro zone's economic problems and limited resources at hand, he writes.
The issues had gained increasing urgency in the light of a growing recognition - acknowledged on Monday in starkly frank terms by Draghi - that the euro zone was at risk of sliding into deflation and the prospect of a downward price spiral that could ultimately destroy corporate profits and the ability of businesses to hire.
