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MNI DATA FORECASTS: EZ Member State Inflation In Focus
MNI INTERVIEW: No Need For More QE, Says ECB's Lautenschlager
--No Need For More QE
--Positive Effects Of More Rate Cuts Unclear
--TLTRO Repricing An Option
By Luke Heighton
FRANKFURT(MNI) - The European Central Bank has no need to resume net asset
purchases at a time when the eurozone economy remains resilient, and it is
unclear whether any interest rate cut would have an overall positive effect, ECB
Executive Board Member Sabine Lautenschlaeger told MNI.
"I do not see the need for a re-start of the APP. It should only be used if
you have a deflation risk and a deflation risk is nowhere to be seen now," the
former Bundesbank vice president said in Frankfurt on Wednesday, as market
anticipation of a significant package of easing measures builds before the ECB's
Sept. 12 meeting. Her remarks came after Bank of Finland Governor Olli Rehn
called for a "very strong package of policy measures" earlier in August,
although Bundesbank chief Jens Weidmann and Dutch central bank President Klaas
Knot have signalled their opposition to major stimulus.
July's eurozone money supply data showed lending at relatively strong
levels, she noted, adding that firms continued to invest despite geopolitical
and economic uncertainties, raising questions about how much improvement an
interest rate cut could achieve.
"Rate cuts are part of the standard monetary policy tools, so it is
something you should certainly think about before you consider non-standard
measures like APP. But overall we have to assess whether these instruments are
needed to support the transmission channel," she said, noting that, while she
agreed with the current "very expansionary" monetary policy, its side effects
also needed to be considered.
The ECB said at its last Governing Council meeting on July 25 that it had
tasked its committees with examining measures to mitigate the effects of lower
rates, such as a tiering system which would apply different interest rates to
financial institutions depending on how much they deposit with the central bank.
Lautenschlager noted that tiering was not the only possible such measure.
"Are there others that we have to look at? ... The banks always bring up
the gross burden, but they also benefit from the negative interest rate."
In the event of economic deterioration, Lautenschlager indicated that one
measure to which she might be open would be a repricing of cheap loans to banks
made under the ECB's existing targeted longer-term refinancing operations.
"That might be, yes," she said, "We can use different tools: a change in
forward guidance, TLTRO, rate cuts, the mitigating measures for rate cuts,
depending on whether the data shows a need for them, their impact, costs and
benefits. But overall, I don't see the need for a huge package."
A resumption of net asset purchases would only be a last resort, she
"We are already in negative yield territory for many government bonds -
what kind of impact could further net purchases bring? We also need to consider
how big the purchase universe is when keeping the current limits. And keeping
the limits is for me of utmost importance to address the risk of monetary
"Furthermore, I am concerned about setting the wrong incentives for
governments ... What is needed are structural reforms to foster sustainable
While Lautenschlaeger acknowledged the increased uncertainty facing the
eurozone at a time when China and the U.S. are locked in a trade dispute,
together with a "downward trend" in the German economy, she insisted that
overall eurozone growth remained resilient. She disagreed with the view,
expressed by prominent U.S. economist Larry Summers, that central banks are
running out of tools to influence the economy, but added that other
stakeholders, such as governments, need to pull their weight too.
"Using fiscal space is one possibility for some countries. But let me
repeat the need for structural reforms. This is necessary for sustainable growth
and would give a boost to the competitiveness of many countries in the euro
area," she said.
Lautenschlager was also doubtful about the move by the Governing Council to
refer in its July statement to the "symmetry" of its inflation target, a term
which was also stressed by outgoing President Mario Draghi in his press
"For me it's asymmetric, as up to now the Governing Council has defined
price stability as an inflation rate of below 2% over the medium term while our
inflation aim is defined as close to but below 2%," Lautenschlaeger said. "A
change should not be done hastily but based on a holistic discussion about our
monetary policy strategy. Do I think that it needs to be changed? I'm not sure."
--MNI London Bureau; +44 203 865 3829; email: email@example.com
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