Lautenschlaeger Sees No Need for Rate Cuts, Changes to QE Design

  • ECB’s German executive board member urges ‘a little patience’
  • Give measures time to work, official says in Strasbourg speech

European Central Bank Executive Board member Sabine Lautenschlaeger said she sees no need for further rate cuts or for changing key elements of the ECB’s asset-purchase program for now.

“Instead of new and always more extreme measures we need a little patience,” Lautenschlaeger said in a speech in Strasbourg, France, on Tuesday. “Monetary policy is working.”

ECB President Mario Draghi said on Sept. 8 that the central bank’s experts will study options to ensure a “smooth implementation” of its quantitative-easing program amid asset-scarcity concerns. While the Governing Council left stimulus unchanged this month, analysts predict that asset purchases will eventually be extended as the euro area’s recovery remains too weak to push inflation back to the ECB’s goal of just below 2 percent after more than three years of undershooting.

Lautenschlaeger, who is also Vice Chair of the ECB’s banking-supervision arm, said that more time is needed to assess the real impact -- both positive and negative -- of QE.

“We will therefore need to be patient for a while before being able to make a final assessment of the purchase program. What matters now is to give the measures time to work,” she said. “I see no reason at the moment to change the key design elements of the purchase program.”

On rates, the German member of the ECB’s Executive Board said that while negative rates are justified and there is theoretically scope for further rate cuts without spurring cash hoarding, she is “skeptical” about such a move.

Ending ‘Uncertainty’

“Conditions on the financial markets have significantly improved and economic growth is back on track,” she said. “Against this background I have my doubts about the benefits of further interest rate cuts -- especially when we compare the benefits with the costs.”

Lautenschlaeger echoed Draghi’s call for euro-area governments to deliver on the promises of structural reforms and complete the currency bloc’s institutional setup, saying monetary policy can only create conditions for economic growth.

“Monetary policy alone cannot build factories or create jobs or balance national budgets,” she said. It is governments that have to “complete the necessary economic reforms, strengthen the institutional foundation of Economic and Monetary Union and bring these times of uncertainty to an end.”

“The measures cannot be continued indefinitely -- at some point the effect of the measures will get weaker and the risks will predominate,” she said.

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