Draghi: It's 'too early' to assess the Trump-EU trade agreement

  • The ECB's interest rate on its main refinancing operations, its marginal lending facility and the deposit facility will remain unchanged at zero, 0.25 and -0.40 percent, respectively.
  • Draghi told reporters that the euro zone still needs "significant monetary policy stimulus," despite announcing last month the winding down of its quantitative easing (QE) program.
Mario Draghi, president of the European Central Bank (ECB).
Jasper Juinen | Bloomberg | Getty Images
Mario Draghi, president of the European Central Bank (ECB).

European Central Bank (ECB) President Mario Draghi said it is "too early" to assess the impact of the recent agreement between Europe and the United States over trade. But that in any case it is a "good sign."

The deterioration in trade relations between the U.S. and Europe has been closely watched not only by market players, but also by central bankers in Frankfurt. Higher tariffs and restrictions by the U.S. could ultimately dent the euro zone economy at a time when the region has finally started to see some positivity following the sovereign debt crisis of 2011.

However, President Donald Trump and the European Commission struck a deal on Wednesday that was welcomed by many in Europe. Their agreement put a break on new tariffs and promised to work toward stronger trade links in the coming months.

Draghi told reporters that the ECB "took note" of the deal. "It's too early to assess the actual content," he said.

"It is a good sign, because in a sense it shows that there is a willingness to discuss trade issues in a multilateral framework again," the central banker said.

Draghi had warned in March — when Trump threatened to impose metal tariffs on Europe — that "unilateral decisions are dangerous."

"What strikes me is whatever convictions you have about trade, we are convinced that disputes should be discussed and resolved in multilateral framework," Draghi said at the time.

'Significant' stimulus still needed

Aside from trade, the euro zone's central bank decided to keep its key interest rates unchanged Thursday. This means that the ECB's interest rate on its main refinancing operations, its marginal lending facility and the deposit facility will remain unchanged at zero, 0.25 and -0.40 percent, respectively.

Draghi told reporters that the euro zone still needs "significant monetary policy stimulus," despite announcing last month the winding down of its quantitative easing (QE) program.

"Significant monetary policy stimulus is still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term," Draghi told reporters in Frankfurt, following another policy meeting.

In June, the central bank outlined plans to end its massive bond-buying program in December and hinted that interest rates are likely to remain at current ultra-low levels until, at least, the summer of 2019. European policymakers repeated Thursday that this is their baseline scenario, which will only be subject to potential changes depending on upcoming data.

Nonetheless, Draghi noted that uncertainty surrounding the inflation outlook is receding.

No discussion over reinvestment policy

Prior to the meeting, traders were hoping for clues on how the bank will reinvest cash from its current bond-buying program. However, Draghi said during a press conference that this had not been discussed by the Governing Council.

The ECB said in a statement earlier Thursday that reinvestment would take place over a long period of time and begin only after the asset purchase program comes to an end.

"The Governing Council intends to reinvest the principal payments from maturing securities purchased under the APP (asset purchase program) for an extended period of time after the end of the net asset purchases, and in any case for as long as necessary," the ECB said.

Analysts at research provider TS Lombard said the ECB will "deliberately talk down the prospect of rate hikes until QE (quantitative easing) is well out of the way."

"And looking that far out (mid 2019), Europe's main central bank becomes hostage to wider global developments well beyond its control," analysts said in a note Thursday, citing higher rates in the United States and trade wars as two potential examples.

"The ECB might get round to raising rates in 2019, but only if this global cycle keeps defying the gloomy consensus," they added.