Central Banks

Thursday, November 8, 2018 - 11:19

MNI POLICY: Draghi Says Economy On Track, Downside Risks Grow

By Luke Heighton

FRANKFURT (MNI) - The eurozone remains on track to meet the ECB's growth and inflation targets, President Mario Draghi said Thursday, but maintaining and deepening the EU is necessary to support the financial stability of its member states.

Draghi said he expected broad-based growth to continue, and euro area inflation to continue to converge towards the ECB's objective of below, but close to, 2% over the medium term.

He reminded listeners that support for the euro among euro area citizens remains strong, and -- in an apparent reference to both Brexit and the ongoing crisis between Brussels and Rome -- said shared institutions made all member states stronger.

Here are the key points from his speech in Dublin:

--The financial stability environment in the euro area overall "remains favorable", but has become "somewhat more challenging in recent months." Sources of risk from outside the EU have grown since May. A stronger U.S. dollar and heightened trade tensions triggered renewed stress in a number of emerging market economies.

--Stress test results published last Friday showed euro area banks are increasingly resilient to financial shocks, though there is still a need to guard against liquidity risks in the non-bank financial sector that could be transmitted to the broader financial system.

--While there is currently no compelling evidence of overstretched asset valuations at the euro area level, there are localized risks. However, euro area monetary policy is not the appropriate tool with which to address them.

-- On Brexit, it is essential to prepare for all possible outcomes, including a no-deal scenario, the direct trade effects of which for the euro area as whole would be limited. Overall risks to euro area financial stability are limited, although a cliff-edge Brexit could have an adverse impact in certain areas of centrally-cleared derivatives markets.

-- The eurozone's continued economic strength and financial stability depends on the completion of the banking union and the creation of a single capital market.

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com
--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

[TOPICS: M$E$$$,M$X$$$,M$$EC$]

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