ECB Sees Slow Approach to Stimulus Change Keeping Markets CalmBy and
Vice President Constancio says investors understand ECB method
Chief economist Praet says output gap won’t close until 2019
Two of the European Central Bank’s top policy makers said they’ll move only very slowly toward unwinding their stimulus program, signaling a desire to avoid any market volatility.
Vice President Vitor Constancio and Executive Board member Peter Praet reiterated the view that the recent acceleration in euro-area inflation is largely due to transitory factors and is dependent on monetary-policy support, and that slack in the economy will last until 2019. The two made the remarks even while acknowledging that the recovery is picking up speed and proving robust.
“We are committed explicitly with certain policy instruments until the end of the year, and we have to take decisions then about the future, before the end of the year -- in my perspective closer to the end of the year,” Constancio said in a Bloomberg TV interview in Frankfurt on Wednesday. “Markets understand that very well, so I do not fear any problems or turbulence resulting from our monetary-policy decisions going forward.”
As the ECB’s June 8 policy meeting in Tallinn approaches, investors and economists are debating whether the Governing Council will change its language on the balance of risks to growth or its guidance on the path of stimulus. That would almost certainly be taken as a signal that the central bank is preparing to wind down its 2.3 trillion-euro ($2.6 trillion) bond-buying program, which is scheduled to run until at least the end of December.
Constancio also suggested that the ECB should stick to its intention to end quantitative easing first before starting to raise interest rates, saying the institution must remain credible. Praet, speaking in Sofia, said that the ECB certainly isn’t yet ready to act.
“We are not yet there, we have to learn to be patient,” he said. “It’s a debate for the coming weeks, coming months to say to what extent we have confidence in” the projected path of inflation.
The ECB will published fresh economic projections after its June meeting, with any upgrade potentially providing the backing for a change in the policy statement. While Constancio said the Governing Council is “fully aware” of the upturn and that it would be “fully reflected” in future decisions, he wouldn’t be drawn on what will happen at the gathering -- or at any meeting before the end of the year.
“I’m not anticipating what the Governing Council will do in June or in September,” Constancio said. “I’m just pointing out something that is evident.”