ECB Stimulus Debate Sees Some Urging Action, Some Awaiting Data
ECB Stimulus Debate Sees Some Urging Action, Some Awaiting Data
(Bloomberg) -- European Central Bank officials revealed differences in opinion Tuesday about the next steps the institution should take to support the euro-area economy and boost inflation.
Dutch central banker Klaas Knot said the ECB should wait for more information about the state of the economy before it decides whether more stimulus is needed. Hours later, the governor of the Bank of Spain, Pablo Hernandez de Cos, said the region’s economic outlook was “highly uncertain,” and “there is no room for complacency.”
The ECB is heading into its next policy meeting on Oct. 28-29 amid growing concern that new restrictions to contain coronavirus cases could hurt the region’s recovery. Growth is forecast to slow this quarter, and investor confidence in Germany’s economy plunged in October.
“Significant monetary stimulus will have to be maintained until we achieve a solid recovery,” Hernandez de Cos said during an online presentation. “Moreover, we cannot rule out the possibility” that existing measures “may have to be recalibrated, or new measures introduced.”
Knot, in contrast, was more sanguine. He told reporters that it wasn’t clear how the recent surge in virus infections would weigh on activity. Third-quarter data -- some of which won’t arrive before mid-November -- will be key to assessing the strength of the economy.
“At the moment, that information is not really there yet,” Knot said. “There are reasons to believe that the second wave will have a less dramatic impact on economic growth than the first wave. It is clear that it will flatten the recovery, but we need time before we can interpret this.”
ECB Chief Economist Philip Lane said over the weekend the institution will decide “meeting by meeting” whether more monetary stimulus will be needed. Vice President Luis de Guindos argued on Monday that officials have time to make up their mind, given they’ve spent less than half of the 1.35 trillion euros ($1.6 trillion) already announced under their emergency bond-buying program.
Economists widely predict the program will be expanded in December.
Both Knot and Hernandez de Cos agreed that the ECB’s monetary stimulus and European governments’ fiscal response helped to cushion the blow from the pandemic on workers and businesses.
“That’s why we must not reduce those support measures too quickly,” Knot said.
Hernandez de Cos said governments should keep fiscal aid in place for the time being. “The damage caused by the premature withdrawal of support measures would exceed the possible cost of maintaining them until the recovery shows signs of sufficient strength,” he said.
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