The European Central Bank has the tools available to act further if needed, as inflation is still below target, Governing Council member Francois Villeroy De Galhau said.
“Inflation remains too low, it’s true, but facing this situation we have been, in the Eurosystem, active and effective,” Villeroy said in an interview with Bloomberg Television in Paris on Tuesday. “Let us first look at economic data, this is the most important point, and if needed — I stress the if — we have the tools and capacity of action.”
Facing sluggish economic growth and plunging oil prices, ECB President Mario Draghi last month extended the central bank’s program of bond buying through March 2017 and reduced the deposit rate to minus 0.3 percent. Investors were still disappointed with the scale of the package, and sent the euro surging.
Euro-area consumer prices increased 0.2 percent from a year earlier in December, a report from the European Union’s statistics office showed Jan. 5, falling short of a median economist estimate of a 0.3 percent increase. The inflation rate remains far below policy makers’ near-2 percent goal.
Studies show that ECB stimulus will add about half a percentage point to inflation this year and “almost the same” to growth, said Villeroy, who has headed the Bank of France since November. The ECB currently predicts consumer prices will increase 1 percent across the euro zone in 2016 after virtually stagnating last year.
Policy makers including Bank of England Governor Mark Carney, International Monetary Fund Managing Director Christine Lagarde and Federal Reserve Vice-Chairman Stanley Fischer are gathering at the Bank of France in Paris on Tuesday to discuss the challenges of bolstering prices at a time when interest rates around the world are at “ultra-low” levels.
In his speech — in honor of Villeroy’s predecessor Christian Noyer — the Bank of France governor warned of the risks and “distortions” engendered by very low inflation. At the same time, he urged caution in tampering with central banks’ inflation goals.
“Hasty changes” to published inflation targets “may only affect the central banks’ credibility and the expectation channel of monetary policy,” he said. “We have more flexibility on the target horizon. This is medium term and should not be confused with the 3-year horizon of the forecasts published by the ECB.”
Speaking in his first interview with English-language media, Villeroy said that asset purchases and interest-rate cuts are among the instruments “on the table” if needed.
The ECB’s Governing Council gathers in Frankfurt next week for its first policy-making session this year. President Mario Draghi will hold a press conference to spell out the council’s thinking on Jan. 21.