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MNI INTERVIEW: ECB Can Still Cut, Policy Appropriate - Vasle

By Luke Heighton
     LJUBLJANA(MNI) - The European Central Bank still has the capacity to cut
rates more deeply and buy more assets despite potential negative side-effects,
the governor of the central bank of Slovenia told MNI in an interview in which
he added that the ECB's current policy mix would likely remain appropriate for
an extended period.
     "I still believe that we have not exhausted our instruments yet, that there
is still space to use existing instruments, and also to expand them further,"
Bostjan Vasle said during the conversation in Ljubljana Feb. 4. "Of course, the
further we go the bigger the side effects of our policies become, and this is an
important part of our discussions - to try to balance all the pluses and minuses
of our actions on the euro economy."
     Slovenia is expecting "stable" economic growth of around 2.5-2.6% over the
next two years, Vasle said, slightly slower than in 2019. However, with exports
accounting for some 85% of the country's GDP, the global slowdown that has
affected European, and in particular German, manufacturing, has to some degree
offset a service sector that is performing "exceptionally well", and a "very
strong" labour market supportive of domestic consumption.
     "Germany is our biggest trading partner," Vasle said, "we are quite heavily
concentrated towards Germany and other European markets, so of course what is
happening in Germany will very soon be translated into the Slovenian economy."
     Vasle said it was too early to tell whether the eurozone's manufacturing
decline was bottoming out, but pointed to signs of stabilisation. Similarly,
though the effects of the coronavirus have a clear "disruptive potential for our
economies," Vasle said he preferred to wait and see how the situation developed
before forming a judgement.
     Increasing protectionism means Europe is faced with a changing paradigm of
international trade, Vasle continued, leaving the balance of risks tilted to the
     "At the moment I think the current policy mix is still appropriate for our
economies," Vasle said, referring to September's tiered cut in the ECB's deposit
rate and its relaunching of quantitative easing, "If we are to change a policy
decision we must be sure that the economy is heading in the right direction. I
basically agree that what we have decided will stay here for an extended period
of time."
     Vasle welcomed the timing of the ECB's recently announced strategic
monetary policy review, which he noted coincides with significant changes to the
composition of the Governing Council.
     "I would like to put different issues on the table, different challenges,"
he said. "In the past 12-13 months there have been a lot of changes in the
Governing Council, 11 new members as compared with December 2018. So this is an
opportunity to see what we are thinking about the current state of monetary
policy and what are the options we support."
     Vasle said there had been "a lot of discussion" within the Bank of Slovenia
on the key theme of the ECB's inflation target, and that they had "developed our
arguments, or rather we've focused our arguments towards some of the options,
and we will present them during the debate over the coming months."
     Asked if the ECB should incorporate housing costs into its inflation
measures, Vasle indicated that he was open to a discussion, but pointed out that
European housing markets are "very fragmented," adding "an additional dimension
to the debate."
     On climate change - a central pillar of Christine Lagarde's reformist
ambitions - Vasle said the Bank of Slovenia was "very supportive" of the agenda
more broadly, and had incorporated the principle of sustainable investments in
its portfolio management. "However," he continued "we are very attentive to the
fact that our mandate is clearly defined and that by doing so we are not acting
outside our mandate."
     Vasle expressed little enthusiasm in response to calls by some national
central banks for a shift from the Governing Council's current, collegial method
of decision-making, to a more formal, and possibly less anonymous, voting
     "I'm part of the Governing Council for slightly longer than one year," he
explained, "and my experience has been that it is almost always possible to find
a solution without a very formal voting procedure. I think it's important to
continue with this practice of extended debate before finding a solution that's
acceptable to all of us. The system we have has worked quite well during the
period that I've been on the Governing Council, and I've found it quite
--MNI London Bureau; +44 203 865 3829; email:
[TOPICS: M$X$$$,MT$$$$,MX$$$$,M$$EC$]

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