ECB Officials Defend Stimulus as Move Needed to Arrest Slowdown

(Bloomberg) -- Euro-area officials set out to defend their latest monetary-policy action, stressing their package of new long-term loans and revised guidance was an appropriate response to the region’s economic slowdown.

“Hard data indicated that a reaction was needed,” Lithuanian Governing Council member Vitas Vasiliauskas told reporters in Vilnius on Friday. “It was a natural preemptive move.”

Recent data have painted a gloomy picture of the euro area’s state of economic affairs, raising concern that the 19-nation bloc would be flirting with recession before long. The European Central Bank responded to sharp downward revisions to its 2019 projections for growth and inflation by announcing a fresh series of long-term bank funding and promising to keep interest at their current rock-bottom levels for longer.

Late on Friday, Executive Board member Yves Mersch told Bloomberg that the ECB remains confident that ultimately a rebound will happen. But policy makers were not quite sure “when exactly it will happen, how strong it will be, and how resilient it will be,” he said.

“That’s why we continue to buy an insurance by considering that there are still downward risks,” he said, pointing to the uncertainties around U.K.’s exit from the European Union and rising protectionism, both outside policy makers’ influence.

The ECB wanted to show it could react without over-reacting, French Governing Council member Francois Villeroy de Galhau told BFM Business radio, adding that the euro area is facing a significant slowdown but not a recession -- an assessment shared by his Austrian colleague Ewald Nowotny.

“We wanted to give an expansionary signal,” he said on the sidelines of a conference in Prague. “I think what the ECB did was a correct reaction.”

The central bank’s package of measures received a tepid response from investors and economists, with concerns that the new funding will be made available on less favorable terms than in the past. Details of the program have yet to be announced and Mersch said they will be presented as soon as the Governing Council is ready and “feels comfortable.”

“To make this a successful program, it has to be well-prepared,” according to Nowotny. Vasiliauskas said that more information may come in April, “but we still have time until September to release the details.”

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