European Central Bank policymakers stressed today that they could still do more to support the euro zone economy after last week announcing a package of measures to ward off the threat of deflation.
The central bank chiefs of Finland and Slovakia, Erkki Liikanen and Jozef Makuch, who both sit on the ECB’s 24-member Governing Council, said the bank could do more if needed.
Last Thursday, the ECB cut interest rates to record lows, launched a series of measures to pump money into the sluggish euro zone economy, and pledged to do more if needed to fight off the risk of Japan-like deflation.
“This is not it yet,” Liikanen said at the Bank of Finland’s quarterly news conference when asked about remaining tools in the ECB’s kit. “We have the capacity to act, we can make decisions, this has not changed.”
In Frankfurt, German Finance Minister Wolfgang Schaeuble said the ECB’s policy measures were appropriate given low euro zone inflation, but added: “The ECB should stick no longer than necessary for price stability to their low interest rate policy.”
ECB President Mario Draghi said after announcing the package last week that “we aren’t finished here”, indicating that so-called quantitative easing (QE) – or money printing to buy assets – is on the table.
Draghi made the comment during the question and answer session of his news conference, not in the statement he read out announcing the measures, on which he said there was unanimity.
Bundesbank chief Jens Weidmann insisted on Friday that “it would be absurd to already start talking now about a further set of measures.”
But the latest comments, and others last Friday from ECB Vice President Vitor Constancio and Luc Coene, Belgium’s central bank chief, suggest a significant group on the Governing Council support Draghi’s readiness to do more if needed.
Asked about asset purchases with new money, or quantitative easing, Makuch said that remained a possibility. He added that interest rates will stay low for a long time.
“How far (rates) can go is a technical question. There is room for a further cut in the benchmark rate, and of course space for adjustment of the corridor or keeping the corridor with the new benchmark rate,” Makuch said.
Last week, the ECB lowered its deposit rate – that it offers for holdings banks’ cash overnight – to -0.1 percent. It cut its main refinancing rate to 0.15 percent, and the marginal lending rate – or emergency borrowing rate – to 0.40 percent.
Aside from QE, there is little of any substance left in the ECB armoury after Thursday’s announcement of new measures to try to steer the euro zone away from the economic quicksand of deflation.
Clemens Fuest, president of the Mannheim-based think tank ZEW, saw a high probability of the ECB embarking on large-scale asset purchases, similar to programmes exercised by the U.S. Federal Reserve or the Bank of Japan.
Asked whether he expected the ECB to launch such a programme, Fuest told German financial daily Handelsblatt: “Yes, I see the probability for this at 95 percent.”
The ECB had signalled that QE was part of its strategy and since the agreed measures would probably not solve the problems, there would soon be calls for new measures, Fuest told Handelsblatt in the interview published on Tuesday.
QE would make sense to avert the risk of slipping into a deflationary spiral, he said, adding that he saw no danger of this happening at the moment.
ECB Executive Board member Benoit Coeure said the euro zone was not in crisis mode anymore and that policymakers must now secure long-term growth. Coeure was speaking during a panel discussion at a conference in Frankfurt. Source: Reuters