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Wednesday, 27 April 2016

Draghi, under fire from German savers, defends low interest rates

© AFP/File | Mario Draghi, President of the European Central Bank (ECB) addresses the media during a press conference in Frankfurt/Main, Germany, on April 21, 2016
BERLIN (AFP) -  ECB chief Mario Draghi on Wednesday defended his expansionary monetary policy in the face of fierce criticisms from Germany, saying higher interest rates would not necessarily bring more benefits to savers.
Germany, a nation of savers, has been complaining that returns on the funds they have parked in banks have been eroded by record low interest rates set by the ECB to boost chronically low inflation.
But Draghi told Bild daily in an interview that "what counts is what one earns on savings in real terms -- that is, interest minus inflation".
While savings accounts were fetching higher interest rates in the 1990s, "we often had an inflation rate that was higher still," said Draghi.
"So you could buy less with the money you received," he said, adding that savers can also opt to invest their money in other ways to get better returns.
The alternative of raising rates today "would be bad for the economy and we would unleash deflation unemployment and recession," he warned.
The ECB has slashed interest rates to zero percent, beefed up its controversial asset purchase programme known as quantitative easing and made vast amounts of cheap loans available to banks in a bid to jumpstart inflation, which is projected to average just 0.3 percent this year, way off the healthy target of 2.0 percent.
German Finance Minister Wolfgang Schaeuble recently even suggested that the ECB's policies were helping foment political unrest in Germany and aiding the rise of an anti-euro, anti-immigrant party, the AfD.
Draghi Wednesday shrugged off the criticisms, saying "the ECB obeys the law, not the politicians".
© 2016 AFP

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