ECB's Coeure Says Forward Guidance Could Change, Just Not Yet

  • For credibility’s sake, guidance must change if outlook does
  • But euro-area inflation remains highly reliant on stimulus

Benoit Coeure left the door open to changes in the European Central Bank’s planned path out of stimulus, but only when the inflation outlook improves.

Speaking just after euro-area data showed headline and core consumer prices slowing, the ECB Executive Board member said guidance that the next move in interest rates might be lower, and they will only be raised well after the end of quantitative easing, is still valid. Still, he also said the central bank must recognize that there are risks to sticking to that approach for too long.

“We would pay a high price in terms of our credibility if we failed to adapt our forward guidance once we had changed our views on the outlook,” Coeure said in Brussels on Friday. “The choice of sequencing of policy instruments will be the outcome of our regular assessment of the medium-term price-stability outlook,” he said, adding that “a too-gradual adjustment of our guidance could ultimately be quite costly.”

After almost four years of negative rates and asset purchases, the debate over the way out of stimulus is heating up amid signs that the region’s recovery is gathering momentum. Governing Council members including Klaas Knot of the Netherlands and Italy’s Ignazio Visco have said a revision of the current sequencing plan is possible, while Executive Board member Peter Praet has repeatedly defended the “strong logic” of the strategy.

Weak Inflation

Coeure noted that recent economic data have pointed to robust growth, but inflation doesn’t indicate that the time for considering an exit plan has come. The European Union’s statistics agency reported on Friday that euro-area inflation slowed to 1.5 percent in March, down from 2 percent. Core price growth of 0.7 percent was the weakest in almost a year.

“Incoming data have shifted the balance of risks for growth towards neutral territory in my view,” Coeure said. “But at the same time, measures of underlying inflation in the euro area remain subdued and our projected path of inflation still remains highly conditional on our policy stance. In line with our forward guidance on the asset-purchase program, this clearly suggests that current expectations on the intended horizon of our purchases, as encapsulated in our introductory statement, and on the sequencing of policy instruments, remain valid today.”

— With assistance by Piotr Skolimowski, and Carolynn Look

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