ECB Can Do QE for Extended Time Before Limits Hit, Lane Says

(Bloomberg) -- The European Central Bank has the scope to buy bonds as part of its monetary stimulus for quite a while before hitting self-imposed limits, according to its chief economist, Philip Lane.

The Executive Board member who proposed the decision unveiled last week signaled on Monday that there’s no imminent danger of reaching buffers previously set by officials to ensure quantitative easing can’t resemble monetary financing.

“Based on our projections on the size and evolution of the purchasable universe, we are confident that the envisaged purchase volumes will be consistent with the current parameters of the APP for an extended period of time,” Lane said at an event at Bloomberg’s European headquarters in London.

Lane’s remarks elaborate on comments by ECB chief Mario Draghi, who said on Thursday that the Governing Council didn’t need to discuss the possibility of raising those limits on bond purchases because “we have relevant headroom to go on for quite a long time.” The president previously claimed that the institution can adjust its buffers if warranted by the economic situation it faces.

Own Rules

The ECB’s rules state that it can buy no more than 33% of bonds from a single government issuer. Its purchases also need to reflect the share each country has in its capital, making member states such as Germany and France the two biggest beneficiaries of monthly purchases.

The ECB pledged to buy bonds at a pace of 20 billion euros ($22 billion) a month for as long as necessary as part of a stimulus package that included an interest-rate cut to an all-time low of minus 0.5%. Policy makers including the governors of central banks in France, Germany and the Netherlands were all against the move to restart QE.

On expectations for the effects of last week’s stimulus package, Lane said he is “not going to disagree” with the estimate that the actions should lift inflation by 20 or 30 basis points. “That order sounds OK to me,” he said.

Last week the ECB cut its inflation forecast for 2020 to 1% from 1.4%. It also cut growth forecasts.

The Governing Council said it’ll only stop purchases shortly before raising rates, meaning it will need to be convinced inflation is “robustly” accelerating toward its goal of just under 2%.

Elaborating more on what was meant by “robust,” Lane said “we understand that this is not for a quarter, or for two quarters. This is going to last.” He added, “we also need to see actual inflation, the outcomes.”

--With assistance from Yuko Takeo and Lucy Meakin.

To contact the reporters on this story: Craig Stirling in Frankfurt at cstirling1@bloomberg.net;Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Brian Swint, David Goodman

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