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ECB Rebuffs Holzmann Remarks That Officials Are Out of Tools

ECB Rebuffs Holzmann Remarks That Officials Are Out of Tools

(Bloomberg) --

The European Central Bank issued a rare statement slapping down remarks by a Governing Council member who suggested the institution is out of tools to stimulate the economy amid the coronavirus outbreak.

“The ECB stands ready to adjust all of its measures, as appropriate, should this be needed to safeguard liquidity conditions in the banking system and to ensure the smooth transmission of its monetary policy in all jurisdictions,” the Frankfurt-based institution said in an emailed statement on Wednesday.

The comment followed an interview by Austrian central-bank governor Robert Holzmann with daily newspaper Der Standard, in which he said the ECB’s Governing Council has reached its limits and policy makers agree that countering the economic impact of the pandemic is “above all” a task for fiscal policy.

“The Governing Council was unanimous in its analysis that in addition to the measures it decided on 12 March 2020, the ECB will continue to monitor closely the consequences for the economy of the spreading coronavirus,” the ECB said in response.

Holzmann followed with a clarification of his own on Wednesday, saying “monetary policy hasn’t reached its limits for a long time,” and the ECB’s toolbox is still well-stocked.

It’s the Austrian central banker’s second attempt this week to walk back comments. During a press conference on Monday, he suggested the ECB could launch its Outright Monetary Transactions program if needed, which would allow for unlimited buying of government bonds. He later clarified he was referring to purchases within the confines of quantitative easing.

Holzmann isn’t the first Austrian governor to get a slap on the wrist. His predecessor, Ewald Nowotny, also had the distinction of having his remarks publicly countered by the ECB, when he said in 2018 that the institution could lift its deposit rate alone when it starts raising borrowing costs.

Lagarde Gaffe

The ECB’s defense of its ability to act highlights the challenge policy makers face in trying to cushion the blow of the coronavirus pandemic for the economy. It comes just days after President Christine Lagarde sparked a sell-off in Italian bonds by saying the central bank wasn’t there to “close the spreads.”

She later clarified the statement, and a number of her colleagues including chief economist Philip Lane rallied to say the ECB was ready to buy more debt of nations such as Italy to calm mounting financial panic.

Vice President Luis de Guindos sought to drive that message home on Wednesday, telling Spain’s Radio Nacional that policy makers can use total “flexibility” in their asset purchases and can act decisively to deal with the current crisis.

Yet financial markets remain on edge, with U.S. equity futures declining along with European stocks, and the cost for banks to secure dollars on the rise. The ECB is offering cheap access to dollars for banks on Wednesday

©2020 Bloomberg L.P.