The European Central Bank (ECB) is likely to decide on the next change in its stimulus settings in the fall, when it will continue the process of tweaking its measures to reflect the euro area’s upturn, Governing Council member and Bank of France Governor Francois Villeroy de Galhau said.
“What we have to do, and what we started to do, is to adapt the intensity of this accommodative monetary policy to the progress toward our inflation target and toward economic recovery,” he said in a Bloomberg Television interview on Saturday. “In the future, and this will be our decision next fall, we will go on adapting the intensity of this monetary policy.”
Villeroy de Galhau’s remarks may be the most definitive yet on when the ECB will take action on its 2.3 trillion-euro (US$2.6 trillion) asset-purchase program, which is currently scheduled to run until the end of the year.
While he is just one of 25 Governing Council members who decide monetary policy for the currency bloc, concerns are rising among some of his colleagues that time is running out if they are to avoid undesirable market volatility.
Villeroy de Galhau’s choice of wording — “adapt the intensity” — which he said three times, adds to signs that the ECB intends to pare back stimulus in a way that would not tighten financial conditions.
Officials are concerned that while growth is picking up, inflation and wages are not.
ECB President Mario Draghi last month signaled that he sees the expanding economy as allowing room for maneuver on stimulus while still maintaining the same level of monetary accommodation.
Executive Board member Benoit Coeure said in remarks published on Friday that the ECB’s action in December, when it announced a cut in monthly bond purchases to 60 billion euros from 80 billion euros starting in April this year, is a guide for how to make policy adjustments in future.
Coeure also said that it is important for the central bank to be transparent in its communications; otherwise it risks more abrupt adjustment for the markets when the decisions are actually taken.
The ECB next meets to set policy on Thursday next week. It then has meetings on Sept. 7, Oct. 26 and Dec. 14, with the September and December decisions accompanied by fresh economic forecasts.
Most economists expect QE to be tapered gradually to zero starting next year, but Villeroy de Galhau, speaking on the sidelines of the Rencontres Economiques conference in Aix-en-Provence, France, stressed that any change to quantitative easing should not necessarily be seen that way.
The 58-year-old also denied that the Governing Council is muddying the outlook by avoiding the topic.
“You spoke of winding down — this is not a present debate,” he said, adding: “We have been extremely clear about the visibility, predictability of our monetary strategy.”
Other colleagues have advocated a faster roadmap for exiting stimulus, with Dutch Central Bank President and IMF board member Klaas Knot warning on Friday that the central bank is “very close to the point” of keeping QE for too long, noting that the global financial crisis was partly caused by too much money being pumped into the system.
Villeroy de Galhau said that what matters most is the real economy, and the ECB should not let itself be distracted by political pressures or investor impatience.
“The most influential members of the Governing Council are pragmatists,” he said. “I clearly am a pragmatist.”
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