Investing.com - European Central Bank President Mario Draghi gave an upbeat view of the euro zone economy on Tuesday, but still urged the need for monetary policy to remain accommodative.
“All the signs now point to a strengthening and broadening recovery in the euro area,” Draghi said at the ECB Forum held in Sintra, Portugal on Tuesday.
“Deflationary forces have been replaced by reflationary ones,” he noted.
Still, Draghi highlighted that, despite above trend growth in the euro area, inflation dynamics have remained muted.
Though the ECB chief was convinced that monetary policy was effective in rebuilding inflation, he pointed out that the reflationary process was being slowed by a combination of external price shocks, more slack in the labor market and changing relationship between slack and inflation.
“The past period of low inflation is also perpetuating these dynamics,” he added.
Draghi also expressed the idea that the factors weighing on the path of inflation were mainly temporary.
“However, a considerable degree of monetary accommodation is still needed for inflation dynamics to become durable and self-sustaining,” he clarified, urging persistence in monetary policy and prudence.
“As the economy picks up we will need to be gradual when adjusting our policy parameters, so as to ensure that our stimulus accompanies the recovery amid the lingering uncertainties,” Draghi concluded.