Coeure Sees ECB Rate Guidance to Gain Prominence as QE Ends

Updated on
  • Executive Board member comments in Handelsblatt interview
  • Says it is ‘logical’ to hope bond buying ends in September

Benoit Coeure

Photographer: Alex Kraus/Bloomberg

European Central Bank policy maker Benoit Coeure said he expects policy makers to change their guidance on monetary policy next year, focusing on interest rates more than bond purchases as officials become more optimistic that inflation is back on track.

The ECB says borrowing costs won’t rise until well after bond purchases stop, and reinforces that expectation by promising to keep buying debt until inflation is on a sustained path toward its goal. That link between quantitative easing and inflation could be loosened before September, when the program is currently scheduled to end, Coeure said.

“I expect this link to change when the Governing Council is sufficiently confident that net asset purchases are less needed for inflation to return toward 2 percent in a sustainable way,” he told Handelsblatt in an interview release on Tuesday. “We were not ready to make that change in October, but I expect it will come at some point between now and September 2018.”

Yields on 30-year German government bonds fell while those on 5-year debt rose after the interview was published, flattening the bund yield curve the most in two months.

The Governing Council decided last month to halve the pace of monthly asset purchases to 30 billion euros ($35 billion), starting January, in a move widely interpreted as signaling that the program will stop late next year. Policy makers are now likely to make multiple small adjustments to their forward guidance rather than any major change in language as they lay the ground for the end of the plan, according to euro-area officials familiar with the thinking of policy makers.

Chief economist Peter Praet said last week that guidance will focus increasingly on interest rates as the end of quantitative easing nears.

Timing vs. Substance

“I expect our interest-rate guidance to gain importance over time, up to a point where the delinking” will become possible, Coeure told Handelsblatt. “Some members thought it would be possible now, while others thought that it would only be possible later. In my view, the discussion is more about the timing than the substance.”

While the ECB currently states that bond buying will be prolonged again if the outlook for inflation worsens, Coeure said it is a “logical conclusion” to hope that no more will be needed.

“The economic environment is improving, price pressures are building up and we’ve become less reliant on our monthly net purchases,” he said. “So we can be hopeful that the October extension was the last one.”

— With assistance by Alessandro Speciale

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