ECB’s Jazbec Says Patience Needed as QE Feeds Through to Prices

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Bostjan Jazbec
Governing Council Member Bostjan Jazbec. Photographer: Chris Ratcliffe/Bloomberg

The European Central Bank officials must be patient for quantitative easing to work its way through the economy and drive a pickup in inflation, Governing Council member Bostjan Jazbec said.

“I think QE is working, that the results are there and that all other options are off the table as we clearly have evidence that we are on the right track,” Jazbec, the governor of the Bank of Slovenia, said in an interview on Wednesday in Ljubljana. “Monetary policy works with lags and we just need to be patient and wait for the results.”

Even with inflation stuck at 0.2 percent in July, far below the ECB’s mandate of close to 2 percent, Jazbec’s comments display a more relaxed tone now that the threat of a Greek exit from the euro has receded. Three weeks ago, just days after that scenario had been averted, ECB President Mario Draghi said officials have tools to respond to any unwarranted policy tightening and could use them if the price outlook deteriorated.

“We are on the right track to bring prices within the range that we see as fulfillment of the mandate,” Jazbec said. “Of course, if we don’t bring inflation within our mandate range, the clear message from the ECB was that we might continue” to buy bonds beyond September 2016, the current end-date for the QE program, he said.

Inflation Rate

For Jazbec, there are “positive developments” on inflation and recent data are in line with the ECB’s expectations of how QE should work.

While the inflation rate held steady in July, core inflation, which strips away volatile elements such as energy and food, accelerated to 1 percent -- the fastest in 15 months.

“I don’t think that we need any tools and any additional instruments at this point,” he said. “I don’t see any reasons why we should discuss any other alternatives for something that is obviously working.”

The ECB is recovering from months of strained negotiations as Greece stood on the brink of default and of an exit from the currency bloc. For Jazbec, brinkmanship between the country and its creditors hasn’t permanently damaged the euro’s credibility.

On the contrary, the crisis “proved that the way the ECB functions may be the benchmark for other European institutions, particularly the European Commission.” This is because the “ECB mimics the supranational attitude that proved to be very difficult” among the region’s finance ministers, he said.

Aid Deal

At the eleventh hour, Greece committed to extensive reforms in exchange for a new bailout agreement that prevented its exit from the euro area. The country aims to seal the deal with its creditors within the next two weeks, in time to receive funds to make a 3.2 billion-euro ($3.5 billion) payment to the ECB on Aug. 20.

The ECB left the level of emergency liquidity available to Greek banks unchanged on Wednesday. It was last raised to 90.4 billion euros on July 22.

“The question on what will happen with Greece lies squarely with the Greek government,” he said. “At this point debt relief is not on the table. Of course, the question of the sustainability of Greek debt -- and this is my personal point of view -- comes after credible reforms are introduced and confidence has been established.”

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