ECB's Draghi confirms forward guidance

Thursday, 1 Aug 2013 | 9:14 AM ET
Mario Draghi, president of the European Central Bank
Photographer | Collection | Getty Images
Mario Draghi, president of the European Central Bank

European Central Bank (ECB) President Mario Draghi repeated on Thursday that interest rates would remain at present or lower levels for an extended period of time, a move the bank hopes will support a recovery in the euro zone later this year and in 2014.

"The Governing Council confirms that it expects the key ECB rates to remain at present or lower levels for an extended period of time," Draghi told a press conference, after the bank left its main interest rate on hold, as expected, at a record low of 0.5 percent.

The economy would need to improve "better than our base scenario" for the bank to change its forward guidance, he said.

"Our monetary policy stance remains accommodative for as long as necessary. We have unanimously confirmed the forward guidance we gave last time," Draghi added.

Draghi's forward guidance, first issued last month, surprised financial markets, because of the ECB's tradition of never pre-committing on future rate decisions.

Draghi said the ECB board had discussed whether to repeat the message about interest rates, and concluded it might not repeat forward guidance if it is convinced markets grasp that the message still holds.

ECB's Draghi confirms forward guidance
Mario Draghi, president of the European Central Bank reports on the outcome of the meeting of the ECB's governing council.

Riccardo Barbieri, chief European economist at Mizuho International, told CNBC: "As long as the economy stays weak, they can credibly say: 'We are on hold for an extended period of time.'"

(Read more: ECB's Draghi wants meeting minutes published)

Euro zone manufacturing activity grew for the first time in July, data released earlier on Thursday showed, offering some hope the region is slowly recovering. Unemployment remains stubbornly high at 12.1 percent, however.

"Labor market conditions remain weak. Looking ahead to the remainder of the year and 2014, euro area growth should benefit from a gradual recovery in global demand," Draghi said.

"Overall,euro area economic activity should stabilize and recover at a slow pace. The risks surrounding the economic outlook for the euro area continue to be on the downside."

(Read more: Brighter euro zone data offers scope for ECB rate cut)

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