Europe’s central bank will take “all necessary measures” to stabilise prices, and banks and governments should see its recent exceptional measures as a “window of opportunity” to make improvements, ECB governing council member Christian Noyer said on Monday.
Noyer was one of two ECB policymakers to speak about the importance of remaining focused on the central bank’s mission of keeping prices in check. Recent funding operations to help stave off a liquidity crunch have raised worries about inflation among hard-liners. “First and foremost, we are providing price stability and will continue to take all necessary measures to fulfill this mandate,” Noyer, who is also governor of the Bank of France, said at a conference at the New York Stock Exchange. “Moreover, our recent exceptional and temporary measures should be seen as a window of opportunity for banks to strengthen their balance sheets and for governments to step up their efforts in a less troubled financial environment.” German Bundesbank head and ECB governing council member Jens Weidmann, speaking at a separate event in New York, also discussed the importance of this mandate, saying monetary policy must not lose sight of its primary objective to maintain price stability in the euro area.
“Monetary policymakers must do what is necessary once upside risks for euro-area inflation increase,” Weidmann said. “Delivering on its primary goal of maintaining price stability is essential for safeguarding the most precious resource a central bank can command: credibility.”
Berlin opposes any extension of the ECB’s mission and sees capping inflation as the best way to promote growth, as that keeps down medium and long-term interest rates.
The ECB held rates at a record low of 1 percent earlier this month, while ECB President Mario Draghi dismissed a German-led push for the bank to start planning an exit from emergency measures.
The bank also pumped over 1 trillion euros into the financial system with twin 3-year funding operations, or LTROs, to stave off a credit crunch late last year. Some at the ECB are concerned that the move could fuel inflation pressures. Noyer said the positive effects from the LTROs have already materialized. “It is too early to assess the extent to which these measures will ‘trickle down’ to the financing of the real economy,” he added at the Paris Europlace Financial Forum.
“But the fact that more banks participated in the second operation… indicates that the money is now closer to small- and medium-sized enterprises than it was before.”
“SLEEP MODE”: ECB governing council member Ewald Nowotny also weighed in on Monday, saying it makes sense for the central bank to wait and observe the performance of the low-interest loan operations.
Nowotny, who is also governor of the National Bank of Austria, characterized the bank’s bond-buying program as being in “sleep mode,” but said new targeted measures can be decided if need be. The new policy measures could be taken if stress makes a comeback in Europe, “but I don’t see a need now,” Nowotny said in a speech at New York University. “This is a common view” of ECB monetary policymakers, added Nowotny. Any new bond-buying would meet strong resistance from the Bundesbank, which has opposed the reactivation of the Securities Market Program (SMP). The program went unused for the sixth week in a row last week, the bank said on Monday, showing no sign of responding to Spain and Italy’s slipping back into the market’s sights in the debt crisis. Over the weekend, top ECB policymakers attending the International Monetary Fund’s spring meetings rebuffed the IMF’s call for the bank to cut its policy interest rate below 1 percent and be prepared to provide more public funding to banks to reduce the risk of a new flare-up of the crisis. Weidmann said the ECB will raise interest rates when there is a growing risk of prices rising above its target, and warned that employing too loose a policy now would increase risks to financial and price stability in the future.
