MNI POLICY: ECB's Lane: Agility Key To Stop Rates Stagnation

By Luke Heighton

     FRANKFURT (MNI) - Monetary policy must be "agile, energetic and persistent"

responding to prolonged inflation undershoots, ECB Chief Economist Philip Lane

said Tuesday, otherwise it risks "stagnating at the current level."

     Here are key points from the speech in Berlin:

     - "The ECB's experience is part of an emerging global consensus that

central banks need to embrace new tools and frameworks: the unconventional

measures put in place since the crisis, particularly if combined in a policy

mix, help compensate for the reduced scope for conventional rate cuts, at least

in part."

     - The "first stage" of the ECB's pivot towards unconventional monetary

policy measures was successful in restoring enough inflationary pressures to

bring inflation back into sustainably positive territory, Lane said. "Currently,

we are in a second stage in which the accommodative monetary stance is still

required in order to support the robust convergence of inflation to our aim over

the medium term.

     - "Underlying our monetary policy stance is the determination to avoid the

macroeconomic risks of inflation stagnating at the current level, in recognition

of the associated fundamental threat to medium-term price stability.

     - Lane said the ECB has demonstrated that the effective lower bound for the

policy interest rate "is in fact not zero: it is in negative territory." "Even

so," he continued "the central bank cannot lower policy rates without limit."

     - "There may also be a reversal rate of interest, below which decreases in

the policy rate fail to be expansionary [...] We are clearly not at that point

in the euro area, as is evident in the ongoing pass-through of easing measures

to lower lending rates and continued credit growth."

     - Annual gross savings for banks from the ECB's two-tier deposit rate

system are estimated to amount to up to EUR4 billion in 2020, Lane said,

compared with the counterfactual projection. "These savings more than offset the

additional gross excess liquidity charge of around EUR1 billion that resulted

from the September cut of the deposit facility rate by 10 basis points."

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com

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