The head of the European Central Bank has underscored the bank's readiness to extend money printing, warning that a key measure of economic health - price inflation - was flagging. As David Pollard reports, his comments sparked a brief rebound in stocks and pushed the euro and bond yields lower.
They're still words, not deeds, but increasingly markets are pricing in the deeds. The euro and euro zone bond yields tumbling on another promise from Mario Draghi. The ECB stands ready to do what it takes - in a tougher and tougher environment. SOUNDBITE (English) ECB PRESIDENT, MARIO DRAGHI, SAYING: "Downside risks stemming from global growth and trade are clearly visible. Moreover, inflation dynamics have somewhat weakened, mainly due to lower oil prices and the delayed effects of the stronger euro exchange rate seen earlier in the year." The pledge came at the European parliament - a similar one made at last month's policy meeting in Malta. Draghi admitted a cut in the ECB's deposit rate could be one instrument. Extending QE another - though that's seen as more complicated. And finding bonds to buy is becoming a problem for the ECB. But: a cut in an already negative rate poses its own difficulties, says Rabobank Strategist Jane Foley. SOUNDBITE (English) JANE FOLEY, SENIOR CURRENCY STRATEGIST, RABOBANK, SAYING: "Negative interest rates really do have a limit, because people will just use cash instead. So, negative interest rates, yes, they may have some effect, but they can't keep on being cut for ever." A rate hike as expected from the Fed next month might do some of Draghi's work for him. A strengthening dollar making the euro zone currency - and exports - cheaper - while boosting imported price inflation. If it doesn't hike - Draghi's task to boost prices gets tougher still as he prepares for next month's policy decision. Deflation at risk of becoming less a temporary worry, more an enduring reality.