ECB Officials Signal Policy Pause as Newest Stimulus Implemented

  • French and Lithuanian central bankers want to gauge measures
  • Italian governor still sees ‘concrete’ deflation risk

European Central Bank policy makers signaled the institution will refrain from announcing fresh stimulus while it gets its newest measures under way.

The governors of the French and Lithuanian central banks said on Wednesday that the focus should be on implementing tools announced in March, including corporate-bond purchases and a new series of long-term loans to banks. Even so, Italy’s central-bank chief set a gloomy tone by saying he still sees a “concrete” risk of deflation in the euro area.

Consumer prices in the currency bloc slid in April, highlighting the ECB’s challenge as it tries to restore the price stability needed to underpin the region’s recovery. The package of rate cuts and increased bond purchases that it announced two months ago will take time to feed through to the real economy, and the bank-lending program won’t start until June.

“The priority today is the implementation of this package,” Governing Council member Francois Villeroy de Galhau, who heads the Bank of France, said at a conference in Paris. “These measures were appropriate given our economic analysis in March and remain totally appropriate today.”

Any Assets

Lithuania’s Vitas Vasiliauskas made similar remarks in an interview with MNI, in which he signaled that policy makers can probably wait until September before thinking about any fresh stimulus. The Governing Council’s next monetary-policy meetings are scheduled for June 2 in Vienna and July 21 in Frankfurt.

“We should concentrate now on the implementation of our important actions,” Vasiliauskas said. Even so, he added that officials would act if needed, with options including interest-rate cuts and the extension of quantitative easing to “any class of assets.”

With the global economy cooling and the U.K.’s June 23 vote on its European Union membership having the potential to send shock waves through markets, further measures remain a possibility. Euro-area inflation was minus 0.2 percent in April, the EU’s statistics bureau said on Wednesday, confirming an earlier estimate. The ECB’s goal is just under 2 percent.

Italian central-bank governor Ignazio Visco said in an interview with Handelsblatt published late Tuesday that the price outlook justifies the ECB’s stimulus, outweighing the burden of low rates for savers and the risk of inflated asset prices.

“I am more worried about deflation,” he said. “That’s the worst that could happen to us. Because with this come bankruptcies and very negative effects on the real economy. I believe that we still have a concrete deflation risk.”

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