Europe Economy

ECB's Draghi: Gradual Recovery in Second Half of 2013

Mario Draghi
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European Central Bank President Mario Draghi called on euro zone governments to implement structural reforms on Thursday, warning that the economy should stabilize later in 2013 but that downside risks to growth remained.

The bank left its main refinancing rate unchanged at a record low of 0.75 percent on Thursday, as expected.

"Our monetary policy stance will remain accommodative," Draghi told reporters at a press conference shortly after the decision. "The continued implementations of structural reforms should work their way through the economy," he said.

"The Governing Council continues to see downside risks surrounding the economic outlook for the euro area," he said. He added that a gradual (economic) recovery should commence in the second part of 2013.

The euro hit a new session high above 1.3050 against the dollar as Draghi spoke.

"Draghi elegantly balanced between dovish and hawkish comments, keeping all options open. In our view, rates should remain on hold unless the economic recovery fails to materialize in the coming months," wrote Carsten Brzeski, senior economist at ING, in a note on Thursday after the press conference.

Draghi sought to reassure investors concerned about the political stalemate in Italy following elections almost two weeks ago. Under Mario Monti's technocrat government the country made progress in implementing economic reforms which calmed investors' nerves. Some now fear that his work could be undone.

"Markets... have now reverted back more or less to what they were before. Markets understand that we live in democracies...You have to consider that much of the fiscal adjustment that Italy went through will continue going on on automatic pilot," Draghi said.

Nicholas Spiro, managing director of Spiro Sovereign Strategy, said Draghi appeared to have taken the Italian election result "in his stride".

"His thinking seems to be that policy continuity is more or less assured irrespective of who ends up governing Italy. This begs the question of whether the ECB itself is underpricing Italian political risk," Spiro wrote in a note on Thursday.