ECB indicates more stimulus is on the way, says Bank of France chief
A KEY policy maker at the European Central Bank (ECB) has signalled that the institution is very likely to boost its emergency bond-buying program to fight the coronavirus pandemic.
With inflation low, there is room to innovate and act “rapidly and powerfully,” Francois Villeroy de Galhau, governor of Bank of France, told a conference in Paris.
He also signalled that he’d like to see limits on the €750bn plan loosened even more.
“It is in the name of our mandate that we will very probably need to go even further,” Mr Villeroy said in a speech delivered by web link to France’s Société d’Économie Politique.
“It is its very flexibility that should make the Pandemic Emergency Purchase Program our preferred marginal instrument for dealing with the consequences of the crisis.”
The ECB’s next policy meeting is June 4 and economists are increasingly forecasting that the central bank will use that session – when it’ll also produce updated economic scenarios – to add more stimulus.
The ECB’s asset purchases are theoretically determined in relation to the relative size of each economy – under a measure known as the capital key – meaning Germany buys most.
Mr Villeroy suggested that for the emergency program, that’s not necessary.
“Clinging to the capital keys to determine each country’s purchase amounts would be an uncalled-for constraint that would undermine the very effectiveness of our intervention efforts,” he said.
The governor also said the ECB is “clearly” willing to occasionally overshoot its inflation goal of just below 2pc in the future, and that it’s an open question whether that target should be treated as an average over time.