ECB Officials Disagree on How Much Is Too Much for Stimulus PlanBy
Chief economist sees need for ‘long period’ of accommodation
Dutch central-bank chief says ECB is close to overdoing it
European Central Bank policy makers continued to air their differences over when to rein in stimulus, sending conflicting signals on whether pumping cash into the economy for much longer will help the euro area or hurt it.
“Underlying inflationary pressure remains subdued” and “we still need a long period of accommodative policy,” Executive Board member Peter Praet, the ECB’s chief economist, told Belgian newspaper De Standaard in an interview published on Saturday. Governing Council member Klaas Knot, speaking on Dutch television on Friday night, warned that the central bank is “very close to the point” of keeping quantitative easing for too long.
The remarks reflect the dissonance since the start of the year in the Governing Council over when officials should discuss winding down their 2.3 billion-euro ($2.6 billion) asset-purchase program. Praet has consistently called for patience, while colleagues such as Knot and Germany’s Jens Weidmann have warned against leaving it too late, and Executive Board member Benoit Coeure has said a failure to be transparent can increase market volatility.
Knot, speaking on Dutch TV’s Nieuwsuur, noted that the last financial crisis was partly caused by too much money being pumped into the system, and so the ECB should be wary of going too far with stimulus.
“If we carry on with this policy for too long, that is absolutely a potential danger,” he said. “The difficulty is that one cannot determine objectively when the moment is when we have continued with this policy for too long. I think that we have gotten very close to that moment.”
Economic data on Friday highlighted the strength of the currency bloc’s upturn, with industrial production beating expectations in Germany, France and Spain -- three of the four largest economies. Still, the ECB doesn’t foresee consumer-price growth returning to its goal of just below 2 percent on a sustained basis until at least late 2019. The Governing Council next meets to set policy on July 20.
“Inflation is picking up, but that is a process that is a long way from completion,” Praet said. “From an inflation perspective, we cannot be satisfied yet.”