“We need to see how this liquidity feeds through over the next few months,” Asmussen said, according to a transcript of an interview with the Finnish newspaper on March 24 and published today.
The ECB has offered European lenders more than 1 trillion euros ($1.3 trillion) for three years since December. The bank’s two long-term refinancing operations have brought down yields on peripheral debt and helped calm markets. That doesn’t mean more such funds are forthcoming, Asmussen said.
“Nobody should expect that we will do a third LTRO based on the fact that we have already done two LTROs,” he said. “We never pre-commit on our actions.”
The non-standard measures employed by the Frankfurt-based central bank to counter the crisis, including buying peripheral euro members’ sovereign bonds and lending funds for three years, are temporary and have served to prevent a credit crunch in the 17-nation single-currency area, according to Asmussen.
The extra liquidity in the financial system hasn’t caused a jump in the inflation rate, he said. Euro-area consumer prices increased for the third month in February, rising 2.7 percent, the same as in January.
“We monitor this very carefully,” Asmussen said. “Inflation expectations across the euro zone are firmly anchored. Owing to rises in energy prices and indirect taxes, inflation is likely to stay above 2 percent in 2012, with upside risks prevailing. In the medium-term we expect price developments to remain in line with price stability.”
The ECB’s objective is to safeguard price stability, defined as inflation near and under 2 percent. Its steps have eased pressure on the markets, allowing banks to keep lending to businesses and households and keeping credit flowing.
“Our non-standard measures are there in order to ensure a good functioning of the policy transmission mechanism,” Asmussen said. The time isn’t right for withdrawing that support, he said, signaling that even amid the crisis, policy makers must begin to consider mapping out how to arrive at a more-standard policy.
“In our view, it is too early to decide on the exit from non-standard measures,” Asmussen said. Even so, “we have to start to think about how to prepare the exit.”
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