Coeure Says ECB Will Reassess Rate Guidance at Every Meeting
European Central Bank Executive Board member Benoit Coeure said policy makers will use each monthly meeting to revisit their unprecedented commitment to keep interest rates low for an extended period.
“It will be reassessed Governing Council after Governing Council,” Coeure said in an interview with Bloomberg Television in Paris today.
The comments provide an insight into the functioning of the ECB’s new policy strategy at time when officials are under pressure to give more details on their commitment to keep interest rates low. Executive Board member Joerg Asmussen sowed confusion on July 9 when he said that the new policy held for a period beyond 12 months, only for the ECB later to issue a statement saying he didn’t mean to outline any time horizon.
“Forward guidance is not a shift in our strategy,” Coeure said. “It’s a way to clarify our communication and provide more stability to financial markets. The mandate of the ECB is the same: it’s intact, it’s a price-stability mandate.”
ECB President Mario Draghi on July 4 unveiled the new pledge as the economy struggles to pick up speed, bank lending declines and inflation pressures remain low. That followed a signal by Federal Reserve Chairman Ben S. Bernanke that the U.S. is preparing to taper bond purchases, which pushed bond yields and money-market rates higher across the 17-nation euro region.
Coeure said today that officials will re-examine the policy monthly “within our two-pillar strategy framework,” which is “based on the available information on the economic side and on the side of money and credit.”
“If needed, this will be reassessed,” he said.
The ECB said in its monthly bulletin today that its guidance covers a “flexible horizon which does not pre-specify an end-date” and is “consistent but not directly linked” to the pledge to provide banks with unlimited liquidity through the first half of 2014.
For former board member Lorenzo Bini Smaghi, the ECB’s commitment is a “vague” promise which will need to be followed by “concrete steps,” according to a guest commentary today for German newspaper Handelsblatt.
Coeure said policy makers “keep an open mind on all possible options.”
More longer-term refinancing operations haven’t been mentioned in the last council meeting and “there is no feeling it will be needed at the current juncture,” he said.
A negative deposit rate is “part of the tool box” and “we are technically ready,” he said. Yet, “the sense” of the council at the last meeting was it’s not needed right now.
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