European Central Bank Executive Board member Benoit Coeure said that inflation in the Eurozone is close to an area that could alter expectations and create downside risks for price stability.
In an interview with the Slovenia newspaper Delo, published Saturday, Coeure said the Bank’s forward guidance makes clear its intention to maintain an accommodative monetary backdrop amid the region’s economic recovery. He also said that while the Bank expects inflation to gradually move close to its ‘close to but below 2%’ target, the Eurotower was prepared to act if needed.
“We remain firmly determined to maintain the high degree of monetary accommodation that is appropriate for the euro area economy, and will not hesitate to take further decisive action if required,” Coeure told the paper. “We are however closer to the area where inflation expectations could be altered and create downside risks to price stability. So we are very vigilant regarding risks to our baseline scenario, which envisages inflation slowly going back to 2% over the medium term. This is our primary mandate and we take it very seriously.”
“At its last meeting, the Governing Council firmly reiterated our forward guidance, whereby we expect the key ECB interest rates to remain at present or lower levels for an extended period of time,” Coeure said.
In an interview that largely focused on the economic and banking challenges facing the Slovenian government, Coeure also touched upon the ECB’s broader role in stabilizing the single currency during the worst of the region’s financial crisis.
“The euro is no longer being challenged as a project,” Coeure said. “This is an important achievement. European policy-makers have confirmed their commitment to the single currency project and to the integrity of the euro area and this has restored trust in the euro in international capital markets. This is why many international investors are now coming to the euro area – it’s a sign of trust in the reform process here. That’s good news.”
He also cautioned member states not to ignore the implications of investment on growth prospects as the economic recovery begins to gain traction.
“What remains very challenging is growth, which is too low, and it should be Europe’s priority to support it not only in countries with adjustment programmes but also in all other euro area countries,” Coeure said. “This cannot be achieved through additional public spending but through additional investment. All countries have to restore a climate of confidence that will be conducive to investment, and this includes large economies such as Germany, France and Italy.”