Visco Says ECB Should Keep Flexibility in Post-Crisis Era
The European Central Bank should keep a high degree of flexibility in its post-crisis stimulus measures, and one way it may do so is by buying more European-Union issued debt, Governing Council member Ignazio Visco said.
“I think flexibility should remain -- we certainly have to discuss how to adjust our purchase programs,” the Bank of Italy governor said in an interview with Bloomberg Television. “It will help against unexpected shocks, and it will help to avoid fragmentation that may rise again.”
He added that an option cited by the Financial Times over the weekend -- raising the share of debt issued by international institutions in the euro area -- is “something that we may end up doing,” but still needs to be discussed. Such purchases currently make up 10% of the Eurosystem’s public-sector bond buying.
Visco’s comments add to an intensifying debate on the design of the ECB’s post-crisis policies. With consumer prices in the euro area increasing at an annual pace of 3.4% -- far faster than the institution’s 2% goal -- officials face a tricky decision on what next steps to take if pandemic bond buying ends as planned in March.
Many policy makers including Visco have dismissed the recent spike as largely transitory, but some have started to warn that inflation could become more entrenched if it stokes higher wages. Slovenian governor Bostjan Vasle said on Monday that “we’re nearing a turning point where we’re starting to see changed inflation expectations.”
ECB President Christine Lagarde said over the weekend that the current spike is unlikely to last. The differing views are leading to a rift within the Governing Council on how supportive the central bank’s post-Covid policies should be.
Last week, French colleague Francois Villeroy de Galhau suggested the ECB should consider keeping some of the flexibility of its pandemic bond-buying program as a “contingent option” for future asset purchases. Others, including Belgium’s Pierre Wunsch and Estonia’s Madis Muller, have expressed reluctance on tweaking their regular tools.
In his interview, Visco also pushed back against market expectations for rising interest rates. Money markets are betting the ECB will hike its deposit rate to -0.4% in September 2022 as it appears increasingly likely that global central banks will need to tighten policy.
“For time being perhaps the market has been a bit too hectic and I think they should look at our forward guidance in a more proper way,” Visco said.
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