BRUSSELS (Reuters) - The European Central Bank is growing increasingly confident that inflation will rise back to its target but patience is still needed, ECB President Mario Draghi said on Monday.
Draghi singled out currency volatility as a source of uncertainty which requires monitoring and argued that the economy still needed to absorb slack, requiring "ample" ECB accommodation.
"Overall, we are becoming more confident that inflation will eventually head to levels in line with our inflation aim, but we also know that a very substantial degree of monetary accommodation is still needed for the upward inflation path to materialise," Draghi told the European Parliament's committee on economic affairs.
With the euro zone economy now growing for the 17th straight quarter, the ECB is expected to reduce stimulus from next year, even if inflation will remain below the bank's near 2 per cent target for years to come.
Indeed, policymakers speaking to Reuters said that the debate is now about the details of the policy shift, such as whether to keep quantitative easing open ended or whether to signal an intent to phase out bond purchases.
"We still see some uncertainties with respect to the medium-term inflation outlook," Draghi said.
"Most notably, the recent volatility in the exchange rate represents a source of uncertainty which requires monitoring. We therefore need to be patient and persistent," he added.
Launched two and a half years ago, the ECB's 2.3 trillion euro bond purchase scheme has depressed borrowing costs and helped revive spending and growth with the bloc creating over seven million jobs since the worst days of Europe's debt crisis.
But inflation has been unexpectedly slow to respond, leaving the ECB with a dilemma as keeping price growth just below 2 per cent is its sole mandate.
It was last at 1.5 per cent.
Yet much of its firepower has been exhausted and the inflation miss is at least partially outside its control, fuelling calls from policymaker to give inflation more time, accepting that lifting prices will take several years longer than initially hoped.