In World Economy News 10/10/2016
Euro-area inflation is on track to reach the European Central Bank’s target of just under 2 percent, Governing Council member Vitas Vasiliauskas said.
“Our forecasts show that in the medium term we will go closer and closer,” Vasiliauskas, who heads Lithuania’s central bank, said in an interview on Oct. 8 in Washington. “The trend is very important.”
ECB President Mario Draghi, who was also in Washington for the annual meetings of the International Monetary Fund and the World Bank, signaled on Saturday that consumer-price growth will probably return to the goal in late 2018 or early 2019. The central bank has fallen short of its mandate since early 2013 — the rate was 0.4 percent last month — and is using negative interest rates, free loans to banks and 80 billion euros ($89 billion) a month of asset purchases to try to get back there.
The ECB forecast in September that inflation would average 1.6 percent in 2018. Revised projections will be published in December, including an outlook for 2019.
The quantitative-easing program is scheduled to run until March 2017 or until officials see a sustained adjustment in the path of inflation consistent with its inflation aim. Vasiliauskas said that while it was still too early to discuss when to end stimulus, a gradual winding down of QE would make sense.
Rational Option
“It is very important not to speak about exit,” he said. “But of course, if we’ll be in line with our task, and we’ll see the sun at the horizon, then the rational and logical exit would be just slow, slow, slow tapering.”
The comments reflect an informal consensus among policy makers that when a decision is taken to end asset purchases, they should be wound down rather than stopped suddenly. The Governing Council hasn’t held formal talks on the topic.
Vasiliauskas added that while the ECB will continue to provide monetary support, its patience over the failure of governments to deliver on structural reforms is growing thin.
“We can see the recovery, but still there is a need to do more — the situation is not easy with factors like Brexit, the international environment, demand” and elections in the bloc’s largest economies, he said. “My evaluation of the situation would be: watch, prepare and act if needed.”
Source: Bloomberg
