MNI INTERVIEW (2): Key Quotes From Interview With ECB Hansson

--Second part of two

By Christian Vits

     FRANKFURT (MNI) - Below are the key quotes form the recent Market News

interview with Estonia central bank governor Ardo Hansson:

     Cont

     Q) On the biggest obstacles to reach a consensus in the last policy meeting

in October:

     A) You have different elements of the package, some of which get more

support than others. There were some parts where all agree, others where maybe

one or two do not agree and some issues where several do not agree. 

     So, there is no such package that at the end of the day everybody is 100

percent in favour. At the end, the program for nine months at E30 billion is

something where you can see the rationale for it.

     Probably there are more issues about the nuances of communication. 

     I think it is a mis-characterisation to say there is either an open-ended

or a closed-ended program, there is a whole range of preferences how to add

enough nuance to the communication. 

     I think once the decision has been taken, I would say let's move forward. I

think it is not helpful to come out and comment after the decision.

     Q) On whether the perceived dovish wording in the press conference in

October has complicated the ECB's communication to announce the exit from the

APP:

     A) I think it gets easier. We now have two very clear examples: To go from

E80 billion to E60 billion per month, which went very smoothly and then going

from E60 billion to E30 billion. The communication went extremely well. In that

sense, it has been going well. 

     If there is an issue on how to go from E30 billion to another lower level

there is a track record of doing that in a very smooth way. 

     That gives confidence if we need to eventually go down further then we will

be able to do this very well. I take confidence from the fact, that these

previous large reductions have been explained and understood by the markets. 

     Q) On whether being confident to communicate another reduction, including a

reduction to zero in September next year:

     It has to be one of the options, that is on the table. With the size of the

accumulated stock, with the reinvestment policy, with the announced sequencing,

all of these issues already in place, and two very large reductions already

behind us, the issue how we will take the final steps sometime in the future

seems to be a relatively minor point. This final bit should not be daunting.

     Q) On whether markets have understood the ECB's message not to raise

interest rates before mid-2019:

     A) I think the sequencing has been very clearly communicated and it makes a

great deal of sense. It has been another example of successful communication. 

     Q) On whether a more rapid increase of inflation than expected could be

seen:

     I think it can't be ruled out, even as we do not see any signs of it. There

are very few signs of such kind of a risk. But if you look at various surveys,

entrepreneurs talk more and more about labour shortage. 

     But I think it's more a gradual shift. You can't rule out that the

relationship will reassert itself suddenly. You don't see much evidence of it

yet.  

     Another thing, which I think is very interesting and I think it's at play,

is that the labour market in Europe is much more integrated, thinking about East

and West, and you have Western Europe which is not growing very fast in terms of

wages, but then you have Eastern Europe where wage growth has been extremely

high.

     For example, in my country wages are growing around 8 percent a year, and I

think there are five EU countries where wage growth is at double digits. The

fact matters that you can move production to different places.

     That is a is a process which will last a few years and then will die out. 

     Q) On whether the ECB's policy is appropriate with a look to Estonia, to

Germany, to Eastern Europe:

     Obviously, monetary policy is geared to the euro area as a whole as it

should be. That's part of the deal of being in a monetary union. You might find

periods where you have - from your narrow perspective -different perspectives,

but once you have made the choice to belong to a monetary union, you should

accept that. 

     Q) On whether the ECB's policy is possibly too expansionary for some

regions:

     A) There is always some country which might be at some different point in

the cycle. (...) Fiscal policy could be geared more towards national

circumstances, while respecting the rules. If you have countries which are

operating at or above full employment, then they shouldn't expand their budget

deficits. Looking at Estonia, Germany and other countries, to spend even more is

not appropriate.

     I guess the distribution of fiscal space right now is not very good in the

sense that those countries which could benefit from fiscal stimulus have no

fiscal space, while those which have fiscal space do not need to use it. 

     Q) On to wo what extent a renewed appreciation of the euro could complicate

the ECB's policy?

     A) It would have to impact the medium-term objective of price stability. If

you have short-term movements that do not affect medium-term developments, you

look through that. If you see a trend developing which affects medium-term price

stability, then we should probably factor it in.

     [As the appreciation of the euro since the start of the year] reflects more

good news, one can be more relaxed, more confident about the developments. 

     Q) On whether the euro area is in a period of a 'steady hand' policy now:

     A) I wouldn't say we are relaxed in terms of inflation. Monetary policy

never is a high frequency event. 

     We are out of crisis mode, it is not like a few years ago when we were

thinking about deflation, this is really not on the table anymore, we are not

talking about a de-anchoring of inflation expectations, they seem to be

well-anchored right now, we are not in a new normal yet, but I think it is

getting back to normal. 

     Q) On whether the ECB is in a normalising period on what it means for

communication:

     A) We are not yet there. We are in a process. You see the adjustments in

the APP, you see the communication which has changed a fair bit over the last

year. If the economy is doing better, if you feel more confident, it would be

strange if we would keep the same language. We have elements like the

sequencing, the limits and so on, which I think should be very durable, but the

rest of the language has changed a bit. 

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: M$X$$$,M$$EC$]