In World Economy News 22/02/2016
European Central Bank Vice President Vitor Constâ ncio said that while no decisions have been made, a lack of confidence in getting inflationary pressures higher could cause his central bank to deliver more stimulus next month.
“We have not decided we are going to act,” Mr. Constâ ncio said. “We need to be sure of where inflation is going,” he said, explaining if officials decide inflation will not be getting back to the ECB’s 2% price-rise target quickly enough, the central bank “may very well decide to act. That’s certainly a possibility.”
But, “we are not pre-committed to anything. We are not trying to build up expectations” that more stimulus will be forthcoming from the ECB next month, Mr. Constâ ncio said.
Mr. Constâ ncio said there may be more pessimism about the economy and the state of European banks than is warranted. “The recovery is ongoing, not spectacularly, but it’s ongoing,” he said. “The fundamentals are better than what markets have been telling us,” he said. Mr. Constâ ncio also said “the risks are to the downside” but he doesn’t believe a recession is likely.
The official said that while European-area growth might be tepid it would be worse without the actions of his bank, which have helped lower borrowing costs and spur growth. “Our policies have been effective. The final outcomes are not what we wanted but there are many reasons that explain that,” he said.
Mr. Constâ ncio, who is also member of the ECB’s executive board, was speaking at an event held by Reuters in New York.
Mr. Constâ ncio said the ECB will be mindful to do what it can with future policy decisions to make sure they aren’t disruptive and are understood by market participants. Actions taken in December saw “misinterpretation” on both sides, with markets overreacting to what the ECB did and the central bank not communicating its policy aims as well as it could have, he said.
The central banker noted that given the recent shock of more energy price declines it’s quite possible the European economy will soon see data showing negative inflation readings, but he expects price pressure to begin rebounding in the latter half of the year. He said what’s key for the ECB is to avoid the “second round effect” of weak inflation starting to drag down expectations of future rate rises.
Mr. Constâ ncio said the ECB is aware one of the main risks of its current policy actions might be to create asset bubbles as market participants use easy money to pursue riskier investments. But so far, Mr. Constâ ncio sees no signs of destabilization.
Mr. Constâ ncio said the possibility of the United Kingdom’s exit from the European Union is surrounded by uncertainty. “I am quite hopeful that the U.K. will stay” in the E.U., and if the nation does in fact leave, “It’s not automatic everything would go slowly” as relationships are untangled and remade.
