ECB policy shifts will be predictable and measured says Draghi

“Adjustments to our policy will remain predictable, and they will proceed at a measured pace that is most appropriate for inflation convergence to consolidate,” Draghi said in his opening speech at the annual ECB watchers conference in Frankfurt. Policy shifts will be “taking into account continued uncertainty about the size of the output gap and the responsiveness of wages to slack.”

Euro dropped after his remarks and traded 0.2% weaker at $1.2373 as of 9:37. 

Draghi’s comments come a week after officials unexpectedly dropped their pledge to increase bond buying if economic conditions sour, a sign of confidence in the 19-nation bloc’s upswing. In his speech on Wednesday, the ECB president identified developments on foreign-exchange markets and protectionist policies as risks that could undermine growth and weigh on inflation.

The ECB has become increasingly alarmed about exchange-rate volatility in recent months - Governing Council member Philip Lane said in comments published Tuesday the institution must keep its guard up against the risk of a sudden appreciation in the euro.

Euro strength

The single currency has strengthened almost 17% over the past year. Draghi said those gains “cannot be explained solely by the economic expansion” and policy makers need to monitor them “closely.”

While volatility observed in financial markets last month has been largely confined to equities, the consequences of “any further sharp repricing” must be watched carefully, he added.

Draghi reiterated his urge for persistence and prudence in providing stimulus. The ECB has pledged to buy €30bn of asset until at least September and to keep interest rates unchanged until “well past” the end of net purchases.

“There is a very clear condition for us to bring net asset purchases to an end,” he said. “We need to see a sustained adjustment in the path of inflation toward our aim, which is a headline inflation rate of below, but close to 2% over the medium term.”

Draghi kicked off a busy day of speeches for the ECB leadership. Chief economist Peter Praet is due to appear at the same event in Frankfurt at 9:45, followed by Vice President Vitor Constancio two hours later. Benoit Coeure, who oversees central bank’s market operations, is due to speak at a closed-door panel in Berlin at 5:15 pm.