European Central Bank President Mario Draghi launched a robust defense of the ECB’s stimulus in front of an audience of top German financial executives, four days after signaling that the central bank is preparing to expand the program.
Speaking at a reception at German stock-exchange group Deutsche Börse AG, Mr. Draghi squarely addressed his critics in Germany and elsewhere who have warned that a long period of ultralow interest rates creates risks for the economy.
“Time and again the critics of our decisions have been proved wrong,” Mr. Draghi said.
“Though low interest rates can encourage risk-taking, there are no warning signs of serious financial instability,” he said.
In a speech filled with direct references to Germany, Mr. Draghi referred to a Bundesbank study in October showing that returns for German household portfolios have been around 1.5% since 2008 after accounting for inflation.
That is “better than in several repeated periods since the early 1990s,” he said, addressing criticism that low interest rates have hurt savers in Germany and elsewhere.
“It’s hardly an expropriation of savers,” he said.
Mr. Draghi highlighted a nascent credit recovery in the euro area and deleveraging among banks.
While there may be “pockets of exuberance,” such as in some housing markets, Mr. Draghi said the ECB didn’t set interest rates to “prick local bubbles.”
If the central bank were to see signs of generalized overheating, “it’s never a problem for central banks to withdraw excess liquidity,” he said.
He also denied it is the job of central banks to “force governments to reform,” pushing back against criticism, particularly in Germany, that easy monetary policy takes the pressure off some peripheral eurozone governments to carry out tough structural overhauls.
“What low interest rates are doing…is stimulating the economy and especially the demand for durable goods, like cars,” Mr. Draghi said, in an apparent reference to Germany’s large auto industry.
At a news conference on Thursday, Mr. Draghi sent an unexpectedly strong signal that he could announce additional stimulus in March in response to persistently low inflation tied to weak growth and falling commodity prices.
He said the ECB would “review and possibly reconsider” its stimulus package at a meeting on March 10, and vowed not to “give up” on the bank’s goal of pushing inflation up to just below 2%.
The announcement came less than two months after the ECB disappointed markets with a smaller-than-expected expansion of its stimulus.
Mr. Draghi reiterated his dovish message on Monday, warning that the real risks for the ECB consisted in not acting decisively to push inflation back toward its target.
“What I never hear them discuss is the risks of doing nothing,” Mr. Draghi said of his critics.
“Those are, to my mind, the real risks we have to be concerned about. And the path our monetary policy is taking is, in that sense, the path of risk reduction.”