27/11/2014
Mario Draghi said the European Central Bank is open to buying a wide variety of assets for further stimulus as German and Spanish inflation data highlighted the struggle to revive the euro-area economy.
If current measures aren’t enough, the Governing Council is “unanimous in its commitment to use other unconventional instruments,” the ECB president said at the University of Helsinki today. “What assets? All range of assets. At this point of the discussion, the discussion is quite open. It’s been going on in several meetings.”
Draghi’s comments come as the 24-member Governing Council enters a week-long quiet period on monetary policy before its Dec. 4 meeting. Officials over the past several days have signaled that they’re working to get stimulus tools ready as soon as possible, including full-scale quantitative easing, while relying on incoming data to decide if and when to use them.
“Here is a central bank which is in danger of losing its grip on the inflationary process,” Stephen King, chief global economist at HSBC Holdings Plc, said in Dubai. “I don’t think anyone in the central bank is particularly enthusiastic about pursuing outright QE, but the reality is that there is nothing else they could really do. And if they’re missing their inflation target and the gap is getting bigger and bigger over time, they have an obligation to act.”
Fading Inflation
Data today showed inflation fading even as other economic indicators strengthened. Spanish prices dropped 0.5 percent this month from a year ago, matching the fastest rate of deflation since 2009. Record-low unemployment in Germany, the region’s largest economy, didn’t stop inflation there slowing to the weakest since February 2010.
Euro-area economic confidence unexpectedly climbed in November, yet figures tomorrow will probably show regional inflation slowed to 0.3 percent. The ECB’s medium-term goal is just under 2 percent.
Draghi’s immediate job is to corral his colleagues on an asset-buying strategy, with the spectrum of opinion ranging from ‘there’s no need yet’ to ‘we’re already late.’
Current stimulus “is delivering tangible benefits, but time is needed for the positive effects to fully materialize,” Draghi said in a separate address today to the Finnish parliament. He said he would “not elaborate on possible upcoming measures” because of the quiet period.
New Tools
The Frankfurt-based ECB has spent the past year trying to improve the access of companies and households to credit, most recently with a program of targeted bank loans as well as purchases of covered bonds and asset-backed securities. With little evidence of a self-sustaining recovery, Draghi is campaigning to create more money.
Vice President Vitor Constancio said yesterday that the best moment to consider whether to deploy new tools such as sovereign-debt purchases is next quarter, when the impact of asset-buying already under way can be gauged.
“They’re moving toward more, but the ‘what’ has not actually been defined, and the Governing Council seems quite divided,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “It would be quite difficult to hit their target of expanding the balance sheet by 1 trillion euros without including government bonds.”
The president has backing from policy makers to push total ECB support to the economy via its balance sheet toward 3 trillion euros ($3.7 trillion), up from about 2 trillion euros currently. The concern among some of them is that existing measures won’t be enough to achieve that, and that inflation might be stuck far below their goal.
‘For The Birds’
“We are not in deflation, but low inflation is as bad as deflation in terms of the capacity of our economy to grow out of debt,” Executive Board member Benoit Coeure told Bloomberg Television’s Francine Lacqua this week.
“The ECB may be realizing that the scenario of a gradual pickup in inflation is for the birds,” said James Nixon, chief European economist at Oxford Economics Ltd. in London. “Draghi’s concern could be that waiting two years for existing programs to work is just too risky.”
One big test for the impact of existing measures will only come after the December policy meeting, which strengthens the case for waiting. ECB officials have said they’re optimistic that a second round of long-term funding for banks linked to the size of their loan books, to be allotted on Dec. 11, will compensate for a weak first round in September.
Just in Case
That leaves Draghi seeking a just-in-case agreement among policy makers on what they’d do next if action is needed -- and there are few easy options.
The most obvious asset class and the one favored by U.S. and U.K. counterparts -- sovereign debt -- is also the most politically problematic in the euro area. Bundesbank President Jens Weidmann reiterated his long-running opposition to buying government bonds this week, and Austria’s Ewald Nowotny and the Netherlands’ Klaas Knot have also recently voiced skepticism on adding such extra stimulus now.
Buying the debt of highly-rated European companies to boost the ECB’s balance sheet while nudging investors to shift portfolios into riskier assets is also on the agenda. Again, that’s incurred the German central bank’s disapproval.
“Signs of an excessive search for yield are particularly evident in the corporate-bond and syndicated-loan markets,” Bundesbank Vice President Claudia Buch said on Nov. 25, suggesting financial-stability concerns if the ECB intervenes.
The ECB could tap the pool of debt issued by the region’s two bailout funds, an idea floated by the Brussels-based Bruegel institute in May. While such agency debt is the closest thing the 18-nation currency bloc has to U.S. Treasuries, its conceptual similarity to sovereign debt means purchases risk being judged as equivalent to monetary financing, which is prohibited in the euro area’s governing treaties.
“Draghi is probably willing to wait for the December TLTRO results before acting,” said Marco Valli, chief euro-zone economist at UniCredit in Milan. “He would probably need to send a signal of upcoming action, which we think will come via corporate bond purchases”
Πηγή
Δεν υπάρχουν σχόλια:
Δημοσίευση σχολίου