QE Should Only Be Emergency Tool, ECB Board Member Says
Bloomberg News
European Central Bank Executive Board member Sabine Lautenschlaeger said policy makers should only consider radical programs such as quantitative easing if the euro area is on the verge of deflation.
'While such measures are in general part of the toolkit, the prerequisites for such a monetary policy measure must be particularly high as the side effects are especially significant,' Lautenschlaeger said in Hamburg. 'Only in a real emergency situation, for example in the case of imminent deflation, could in my view such an instrument be considered. Those risks are neither visible, nor do we expect them.'
The ECB stepped up its fight against the risk of falling consumer prices last month with a raft of stimulus measures including a benchmark interest rate near zero, a negative deposit rate and a flood of liquidity for banks aimed at reviving lending to the real economy. ECB President Mario Draghi has pledged further measures such as quantitative easing if the outlook for consumer prices in the euro area deteriorates.
Inflation (ECCPEST) in the currency bloc has been below 1 percent for nine months, compared with the ECB's goal of just under 2 percent, and was at 0.5 percent in June.
Targeted Loans
This was Lautenschlaeger's first major speech on monetary policy since she became the newest addition to the ECB's 6-person Executive Board in January. While the board designs and implements monetary policy, Lautenschlaeger's previous experience at Germany's Bundesbank, where she was vice president, was largely in bank supervision. She is also vice chair of the ECB's Supervisory Board, which will be responsible for oversight of euro-area lenders from November.
The impact of the newest stimulus package will take time to become apparent, and it is important to monitor the use of the ECB's targeted longer-term refinancing operations, which will start in September, she said today.
'Patience is a virtue,' Lautenschlaeger said. 'Measures such as the targeted long-term loans will take longer until they show their effect. I'm thinking about next year rather than this one.'
Near Zero
Under the TLTRO program, the ECB will offer banks an initial total of as much as 400 billion euros ($544 billion) this year that they can hold until 2016 with no strings attached. They can keep it another two years if they meet specific new lending targets set by the ECB, and they can borrow more funds starting in March if they exceed those thresholds. At his monthly press conference on July 3, Draghi said the total take-up could be 1 trillion euros.
Executive Board member Benoit Coeure said yesterday that officials will keep borrowing costs low even as other central banks including the U.S. Federal Reserve and the Bank of England discuss an eventual exit from ultra-loose monetary policy.
'We've been clear, I think, that rates will remain very low, very close to zero, for a very long period, regardless of the developments in the rest of the world,' Coeure said at a conference in Aix-en-Provence, France. 'We have to be careful about risks of bubbles,' which would be dealt with 'not by raising rates but with other instruments at our disposal,' he said.
Lautenschlaeger said work by the central bank on a program that could see it buy asset-backed securities is a 'worthwhile aim' as a way to revive the market and inject liquidity into the financial system. At the same time, she said she would be 'skeptical' of the plan if it also shifted credit risk to the ECB from the banks.
To contact the reporter on this story: Stefan Riecher in Frankfurt at sriecher@bloomberg.net
To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net Paul Gordon, Eddie Buckle
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