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Draghi speaks of 'strengthening and broadening recovery' in euro zone, but says stimulus must remain

The European Central Bank (ECB) will have to be prudent to gradually adjust its monetary stimulus to the economic recovery, Mario Draghi, the president of the central bank, said Tuesday.

Speaking at the European Central Bank Forum in Sintra, Portugal, Draghi made it clear however that the current stimulus needs to remain in place as inflation dynamics remain "more muted than one would expect."

"We can be confident that our policy is working and its full effects on inflation will gradually materialize. But for that, our policy needs to be persistent, and we need to be prudent in how we adjust its parameters to improving economic conditions," Draghi said.

He reiterated: "The current context where global uncertainties remain elevated, there are strong grounds for prudence in the adjustment of monetary policy parameters, even when accompanying the recovery. Any adjustments to our stance have to be made gradually, and only when the improving dynamics that justify them appear sufficiently secure."

The central bank has been under growing pressure to start tightening its policy given that inflation figures have improved, economic growth has returned to the euro area and political uncertainty has dissipated.

"All the signs now point to a strengthening and broadening recovery in the euro area," Draghi, said recognizing the improvements. However, he argued that the inflation dynamics aren't solid enough to exit the stimulus program.

"We are still in a situation of continuing slack, and where a long period of subpar inflation translates into a slower return of inflation to our objective. Inflation dynamics are not yet durable and self-sustaining. So our monetary policy needs to be persistent," Draghi said.

European Central Bank (ECB) President Mario Draghi
Sean Gallup | Getty Images
European Central Bank (ECB) President Mario Draghi

The head of the ECB also downplayed the use of the word tightening.

"As the economy continues to recover, a constant policy stance will become more accommodative, and the central bank can accompany the recovery by adjusting the parameters of its policy instruments – not in order to tighten the policy stance, but to keep it broadly unchanged," Draghi said.

The euro rose to a nine-day high following Draghi's remarks.

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