ECB Must Maintain Highly Accommodative Conditions, Visco Says

  • Bank of Italy Governor, ECB Council member speaks in Modena
  • Reforms, stability ‘key’ for Italian economic growth

The European Central Bank must maintain an accommodative stance on monetary policy to avoid deflation risks and ensure price stability, Bank of Italy Governor Ignazio Visco said.

“There are as yet no clear indications of any inversion of trend in the core components driving developments in consumer prices and wage growth,” Visco, who sits on the European Central Bank Governing Council, said on Saturday in a speech at the annual Assiom-Forex conference in Modena, near Bologna. “To bring inflation back to a path consistent with medium-term price stability, monetary conditions must continue to be highly accommodative.”

Ignazio Visco

Photographer: Andrew Harrer/Bloomberg

Euro-area inflation is heading toward the central bank’s mandate, Bundesbank President Jens Weidmann, who also sits on the ECB Council, said Thursday in a speech. “Once price developments are sustained, they will provide the foundation for an exit from loose monetary policy," Weidmann said. The ECB’s “expansionary monetary-policy path is currently appropriate" given the still-moderate inflation in the 19-country region, he added.

On the same day, Spain’s Prime Minister Mariano Rajoy expressed concern over a premature tightening of monetary policy by the ECB as the debate on when to exit quantitative easing intensified.

Deflation Risk

The ECB “greatly curtailed the risk of deflation and paved the way for a gradual return to monetary stability,” Visco said in Modena. He added that the December’s rise in inflation is “largely ascribable to the energy components” and “other highly volatile items.”

ECB President Mario Draghi reiterated last week that the risks to the euro-area recovery remain tilted to the downside and inflation is accelerating.

In his speech Visco also said Italy’s economy, the euro region’s third biggest, is “now, though slowly and laboriously, emerging” from a long crisis and in order to develop needs “stability and reforms.”

“There are no shortcuts, particularly for a country burdened with such a large public debt,” the governor said in a reference to a debt load that is more than 130 percent of Italy’s gross domestic product, the second largest by that measure in the 19-member bloc.

Italy’s GDP will expand 0.9 percent in 2017, unchanged from last year, the central bank forecast in a report last week. The Bank of Italy said there are downside risks from less favorable credit conditions, financial market tensions and any slowdown of reforms undertaken in the past years.

Earlier this month the International Monetary Fund cut its economic forecasts for Italy, saying growth this year will be limited to 0.7 percent.

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