Skeptical ECB Governors Widen Rift on Need for December Move

  • Estonian, Slovenian governors speak against further easing
  • Executive Board members hint options still open for policy

Two European Central Bank Governing Council members said they see no need as yet to ease monetary policy further in December, despite continued signals from the ECB’s leadership that such a decision remains an option.

“Knowing what I know as of today, including those inflation outcomes” for the euro zone in October, “which I think were more positive than I would have expected, I would see even less reason to make changes now,” Estonia’s Ardo Hansson told Bloomberg on Friday. His Slovenian counterpart, Bostjan Jazbec, said in Brdo, Slovenia, that he doesn’t “see the need for further additional unconventional measures by the ECB at the moment.”

Hansson’s comments reaffirm caution he voiced over the past two weeks over ramping up ECB asset purchases or cutting the deposit rate. Both are options highlighted by ECB President Mario Draghi on Oct. 22 as being matters for consideration at the next Governing Council meeting on Dec. 3. The Frankfurt-based ECB is attempting to boost an inflation rate that’s far below its target of just under 2 percent, at a time when falling commodity prices and slowing global trade are depressing price gains.

Despite his concern, Hansson said in an interview in Tallinn that the ECB has more room to cut the deposit rate than anticipated a year or two ago.

“We know that some countries have gone lower than the ECB but we also know that those are small jurisdictions,” Hansson said. “I think nobody knows exactly where that kind of new lower bound is but it is lower than where we used to think it is in the past.”

Klaas Knot, governor of the Dutch central bank, said on Friday that it’s important to weigh further action to fight inflation against the side effects of those policies. Latvia’s Governing Council member, Ilmars Rimsevics, also said on Oct. 28 that there’s a need to see more data before deciding on the need for a fresh round of stimulus.

In the meantime, there have been signs that the slowdown in China’s economy is having knock-on effects in the euro area, as German industrial production fell for a second month, data released Friday showed. That follows a third-straight monthly decline in factory orders.

Amid dissenting voices from the 19 nations that make up the currency bloc, the ECB’s six-strong Executive Board is mostly sticking to the script on the need for a full discussion on easing options. Peter Praet, who acts as the central bank’s chief economist, said on Friday that the 1.1 trillion-euro ($1.2 trillion) asset-purchase program “will run until we see sustained adjustment in inflation toward our medium-term goal.”

That may imply extending the duration of the current program, which envisages asset purchases of 60 billion euros per month until September 2016. Consumer prices in the euro area stagnated in October. The ECB currently forecasts that the inflation rate will return toward its goal later in 2017. Fresh projections are due in December, providing a potential impetus for action.

“Monetary policy will remain accommodative for an extended period of time,” Executive Board member Yves Mersch said in Brdo on Friday. “The ECB will also support this process by ensuring that inflation returns back towards our objective.’

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