The European Central Bank will resort to quantitative easing if circumstances warrant it but expects recent measures it took to preclude such a situation, Executive Board member Benoit Coeure said Friday.
Referring to QE, Coeure said at a media briefing following the 20th Dubrovnik Economic Conference: “It is a possibility, it is in the toolbox in case the situation would change later on. But we don’t expect that situation to materialize because we believe that the decisions that we took last week are appropriate.”
At the present moment QE is not needed, he stressed, “because we don’t see deflation in the Eurozone and we have a deep sense that the measures that we took last week are appropriate to face the low inflation.”
However, he also made clear, QE is “absolutely part of the toolbox and our view is that this would be part of the nonconventional measures that would have to be considered” in the event that “later on down the road we see that we still face the prospect of a too prolonged period of low inflation or a risk of dis-anchoring of inflation expectations.”
“Then we stand ready to do more,” he said.
Coeure reaffirmed the conformity of QE with the EU Treaty and the applicable statutes.
In general, he said, “it is really too early to discuss our next decisions.”
The ECB is “entirely focused today on assessing the impact of the decisions we took last week … so we still have to see how these decisions, in particular the decision on the negative deposit rate … will shape the functioning of money markets in the Eurozone.”
This process only started two days ago, when the interest rate cuts took effect, he noted.
Besides monitoring the effect of the decisions, he continued, “we have to prepare the targeted long-term refinancing operation that we announced last week, and we still have a number of parameters to fix and disclose so that banks can” make the decisions they need to make regarding their participation.
This technical preparation and that related to reviving the asset-backed securities market is absorbing authorities’ attention, he stressed.
“So that’s where our priority is today, our priority is not to reflect on what to do next,” he reiterated.
The measure of success for the ECB “is not the short-term financial market reaction,” he said, pointing out that the ECB’s primary mandate is ensuring price stability.
“Really the measure of success should be whether inflation goes back to our measure of price stability, which is 2%, both practically – but this of course we’ll know only over time – and also in terms of inflation expectations,” he said.
Coeure repeated the ECB’s justification that prolonged low inflation could disanchor expectations.
The muted reaction of the euro on foreign exchange markets can be taken “as a measure of success of our communication before,” he said, noting that the ECB had largely conveyed its intentions previously.
Asked about the use of the euro by countries of the region not yet even in the EU – which include Montenegro and Kosovo – Coeure reacted philosophically, calling “a certain degree of euroization” in the vicinity of countries officially euro area members “just an economic fact.”
As these countries approach EU accession, then the matter of the currency “has to be embedded in a legal framework,” he said, but for now “it’s just a fact that we have to accept.”