Lane Says ECB Has Room to Run Before Bond-Buying Limits Bite
Lane Says ECB Has Room to Run Before Bond-Buying Limits Bite
(Bloomberg) -- The European Central Bank still has plenty of room to go before its bond purchases reach existing constraints, Chief Economist Philip Lane said, pushing back against concerns that its stimulus tool risks exhaustion.
Speaking in New York on Friday, Lane said the need to raise buying limits was a “non-issue” for now. The ECB will restart debt purchases in November at 20 billion euros ($22 billion) a month and promised to keep going until inflation reaches its target of just under 2%, something that looks unlikely before at least 2021.
“Any potential collision with the current limits is so far out in the future that if we’re stuck at that situation, I don’t think that’s top of the list of headaches to worry about,” Lane said. “We wouldn’t have done that if we believed there was kind of a super-short-run collision between the purchase program and the current limits.”
The decision on bond buying was the most controversial part of the stimulus program announced earlier in September. About eight policy makers, including governors from France and Germany, opposed the resumption of quantitative easing, and the decision probably contributed to Executive Board member Sabine Lautenschlaeger’s resignation this week.
Skeptics of QE fear the program could inadvertently lead to monetary financing of euro-zone governments, something prohibited under European Union laws. As a safeguard, the ECB imposed limits that force it to buy no more than a third of bonds from each member state.
Lane said didn’t rule out potential changes to limits down the line, saying “the tactics of how we run the purchase program evolve.”
“What you should pay attention to is: we’ve got an open-ended program, and we’ve given you conditions under which it will come to an end,” he said.
During an hour-long question-and-answer session, Lane said he expects demand for longer-term funding for banks to improve after last week’s tender attracted very low demand.
He also said the ECB still had plenty of room to cut rates further, adding that the new stimulus program amounts to a policy recalibration, not some dramatic move.
“When you see a significant deviation from the target, it’s important to respond,” he said. “And that’s what we’ve done.”
--With assistance from Yuko Takeo.
To contact the reporters on this story: Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net;Matthew Boesler in New York at mboesler1@bloomberg.net
To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Craig Stirling
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