Coeure Says Trade-War Challenge Isn't Shaking ECB's Path to Exit
(Bloomberg) -- Benoit Coeure said the European Central Bank is alert to risks from trade tensions that are rapidly escalating, but its current monetary-policy stance is working well.
While it’s less than a month since the ECB announced it would end net asset purchases this year, protectionism has gone from rhetoric to reality with the U.S. and China implementing new tariffs late last week. That has the potential to hit business confidence, curb investment and even global growth.
“So far what we’ve seen doesn’t have potential to derail the recovery,” Coeure, a member of the ECB’s Executive Board, said in a Bloomberg Television interview at a conference in France. But he added that policy makers’ aren’t complacent.
The Governing Council’s June decision “already takes the risks into account” and there’s currently “no reason to change policy expectations,” he said.
For central banks, the exit from crisis-stimulus was never going to be easy, but the trade issue adds another complication. The Federal Reserve has noted some firms are slowing investment, and Bank of England Governor Mark Carney said Thursday that the “more hostile and uncertain trading environment” may be hurting global activity.
The impact on business confidence so far has been “limited,” Coeure said. "The backdrop is very strong, resilient growth in the euro zone.”
In a speech at the conference, he noted both the benefits of globalization and concerns about widening inequality. Still, he has little time for Donald Trump’s protectionist response.
“Too often the solutions offered to today’s global challenges are simplistic and short-sighted,” he said. “For example, raising tariffs and withdrawing within national borders will deprive people of the economic benefits of trade and integration.”
Coeure declined to provide any more clarity on the ECB’s rate-guidance language, which says interest rates won’t increase until “at least through the summer of 2019.” Asked what it means, he said “at least through the summer means at least through the summer.”
Bloomberg reported this week that some ECB policy makers were unhappy with how investors interpreted the language. Coeure said it’s been effective and “precise enough to anchor, pin down money market rates.”
Regarding reinvestments of maturing debt the ECB holds as part of its QE program, he said that neither the Governing Council nor committees have discussed any details and there’s also been no discussion of an “Operation Twist.” He doesn’t expect a departure from the capital key, which stipulates that purchases should reflect size of a country’s economy.
Last month, euro-area officials familiar with the matter said the ECB could consider relaxing the rules on buying.
“I see it as a technical discussion, not as a major aspect of monetary policy when it comes to the maturities,” Coeure said. “But the commitment to reinvest is important because it’ll ensure continued market presence which is important to maintain the degree of monetary accommodation.”
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