FRANKFURT: Weakness in eurozone price pressures is extending into the medium-term, the time horizon the European Central Bank looks at when deciding on policy, ECB policymaker Peter Praet said.
Praet, who holds the powerful economics portfolio on the ECB’s Executive Board, told Portuguese newspaper Expresso: “If our mandate is at risk, we will act without hesitation”.
The ECB’s mandate is to deliver price stability, which it defines as inflation of close to but below two percent over the medium-term. Euro zone inflation is running at just 0.7 percent — well below the target. “We do not see a risk of deflation, but we admit that the pressures on prices are weak, and that this weakness in price development is extending to the medium-term,” Praet said.
The ECB, which holds its next policy meeting on March 6, has set out two scenarios that could trigger fresh policy action: a deterioration in the medium-term inflation outlook and an “unwarranted” tightening of short-term money markets.
A cut in interest rates is one option for dealing with low eurozone inflation, or tight money markets. Another option the ECB has discussed is to suspend operations to soak up the money it spent buying sovereign bonds under its now-terminated Securities Markets Programme during the debt crisis.
“When we issued our forward guidance last November, we communicated that we will continue to have a very loose monetary policy and we will do whatever is necessary to fulfill our mandate,” Praet added. Reuters
