ECB Policy Makers Say They’ll Cut Rates and Add QE If Needed
ECB’s Rehn Says Toolkit Still Includes Rate Cuts and More QE
(Bloomberg) -- The European Central Bank is willing to cut interest rates and resume bond purchases if necessary, two policy makers signaled on Tuesday.
Bank of Finland Governor Olli Rehn and his Slovakian counterpart Peter Kazimir both gave press conferences at which they said the ECB is ready to combat any further slowdown that threatens to prevent them restoring price stability. Market-based inflation expectations for the euro zone tumbled to record lows last week, despite the central bank extending its pledge to keep rates at record lows.
“The Governing Council is determined to act and stands ready to adjust all of its instruments, as appropriate,” Rehn, who is a contender to succeed ECB President Mario Draghi in November, said in Helsinki. He also said the institution’s economic analysis at its policy meeting last week showed the external risks to the euro area won’t fade in the near term.
“The global economy and global politics are surrounded by protracted uncertainty, reflecting, in particular, the expanded and heightened trade war in particular between the United States and China. This trade war is unlikely to subside any time soon, due to the underlying struggle between the two countries over technological and economic supremacy.”
-- Olli Rehn, June 11
Rehn has repeatedly called for a review of the strategy for achieving price stability. On Tuesday, he said any rate cuts could be accompanied by “possible mitigating measures” -- a reference to the debate over whether some bank reserves should be exempt from the negative deposit rate.
Banks have complained that their profitability is being squeezed, and Draghi has said he’ll consider whether that could force them to pare back lending.
Rehn also said that “the Governing Council may, should economic developments so require, strengthen its forward guidance and its linkage to the achievement of the price-stability objective.”
Kazimir, holding his first press conference as the new Slovak governor, acknowledged that measures of sentiment show the economic mood is worsening while noting that hard data has been less downbeat.
“We don’t see any reason why we would speak about recession or deflation,” he said in Bratislava. Chief economist Philip Lane “is ready to present further measures to us. If needed, the ECB is also ready to identify this ammunition.”
To contact the reporters on this story: Leo Laikola in Helsinki at llaikola@bloomberg.net;Kati Pohjanpalo in Helsinki at kpohjanpalo@bloomberg.net;Radoslav Tomek in Bratislava at rtomek@bloomberg.net
To contact the editors responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net, Paul Gordon, Zoe Schneeweiss
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