The European Central Bank (ECB) might not need to add stimulus measures after steps in the past three months pushed down the euro, Governing Council member Ignazio Visco said.
“Inflation expectations have to be back where they were,” Visco said yesterday in an interview in Cairns, Australia, where he is attending a meeting of G20 finance chiefs. “This doesn’t mean that there will be a next step. We have been bold enough to reduce interest rates to a level that was unexpected to the market.”
The single currency has dropped about 6 percent since early June, when the ECB introduced a negative interest rate on excess reserves and presented a four-year lending program to fuel credit. Policymakers reduced borrowing costs further earlier this month and committed to buying asset-backed securities and covered bonds to boost the ECB’s balance sheet by as much as 1 trillion euros (US$1.3 trillion).
The extent of the exchange rate’s fall is “more or less, given the moves that were done between June and September, the right response,” said Visco, who also heads Italy’s central bank.
The ECB is not targeting any exchange-rate level, he said.
In the first of eight liquidity offers linked to banks’ loan books, dubbed TLTROs, the ECB allotted 82.6 billion euros last week, less than all predictions in a Bloomberg News survey. That has sparked speculation among economists and investors that the ECB could be forced to resort to large-scale sovereign bond purchases to reach its goal.
“There has been some misunderstanding about the TLTROs because it has been conceived as a major failure,” Visco said. “The second tranche is more important than the first. What we have observed in a number of countries is that banks postponed borrowing until December. As far as the Italian banks are concerned, it was exactly what we expected.”
UniCredit SpA, Italy’s biggest lender, said it raised 7.8 billion euros, while Intesa Sanpaolo SpA, the second largest, took 4 billion euros.
ECB Vice President Vitor Constancio told Bloomberg News on Thursday that the targeted longer-term loans will lead the balance-sheet expansion. Total take-up will be “significant,” with purchases of ABS and covered bonds making a smaller contribution, he said.
ECB President Mario Draghi has committed to increase the central bank’s balance sheet toward 3 trillion euros, the size reached at the height of the sovereign debt crisis in 2012.
To reach that goal, “you may need perhaps to do more if inflation remains at this very dismal level,” Visco said.
Euro-area consumer prices rose 0.4 percent from a year earlier last month, compared with the ECB’s goal of just under 2 percent. The Frankfurt-based central bank lowered its inflation forecast for this year to 0.6 percent this month and said the rate would average 1.1 percent next year and 1.4 percent in 2016.
“We are not in a deflation mode but we are in excessive disinflation, and it is not an issue of a single country, it is broad-based,” Visco said.
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