Wunsch Open to ECB Flexibility But Wary of Changing Tools Often

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The European Central Bank may be better off not tinkering too much with its tools as it debates how to support the post-crisis recovery in the euro area, according to policy maker Pierre Wunsch.

“I’m open to having a discussion -- I err on the side of not changing our instruments too often,” the Governing Council member told Bloomberg. “We have proven in the past that we can be flexible if needed.”

Wunsch, who heads the National Bank of Belgium, also said in earlier remarks to Bloomberg Television that the central bank will maintain a “very supportive monetary policy,” even after the end of its emergency bond-buying program in March. 

With policy makers approaching key decisions on post-Covid stimulus in coming weeks, the comments hint at his support for keeping the existing instruments as they are while reserving the option of responding to shocks as they emerge.

Earlier this week, his French colleague Francois Villeroy de Galhau suggested the ECB should consider keeping some of the flexibility of its pandemic bond-buying program -- known as PEPP -- for future asset purchases.

PEPP is more flexible across asset classes and among jurisdictions than regular quantitative easing. It also isn’t set to monthly amounts, allowing policy makers to react to shifts in financial conditions when and where they occur.

Wunsch’s comments appear to signal some reluctance toward transferring those attributes to post-crisis bond buying. One of his other colleagues, Estonian Governor Madis Muller, said last month that “I don’t think we can take the flexibility that was there for PEPP and just transfer it.”

Behind the emerging fault line on the future of stimulus lies a broader debate on how long-lasting the current bout of inflation pressures might become. Consumer prices in the euro area are now increasing at an annual pace of 3.4%, far faster than the ECB’s 2% goal. 

While most policy makers have dismissed the recent spike as largely transitory, some have started to warn that price pressures could become more persistent if they lead to higher wages.

“It seems that we are at some kind of inflection point,” Wunsch said. “We are below our objective, so we could afford some second-round effects, but not too much.”

The Frankfurt-based central bank is expected to announce the next steps for its emergency bond-buying program in December. 

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