Re­ject­ing OMT is stance against price sta­bil­ity: ECB

The Pak Banker - - Front Page -


Euro­pean Cen­tral Bank Gov­ern­ing Coun­cil mem­ber Chris­tian Noyer said re­ject­ing the ECB's new bond-pur­chase tool is akin to op­pos­ing price sta­bil­ity, as his col­league Jens Wei­d­mann sug­gested con­cern on the pro­gram isn't lim­ited to him.

"If we are un­able to avoid de­fla­tion be­cause our mone­tary pol­icy has no grip on the econ­omy, we can­not ful­fill our man­date, we are com­pletely par­a­lyzed," Noyer, gover­nor of the French cen­tral bank, said in Madrid yes­ter­day. "Sim­ply from that I take the con­clu­sion that be­ing against the OMTs to­day is be­ing against price sta­bil­ity, it is as sim­ple as that."

Noyer's re­marks sig­nal per­sist­ing dis­agree­ment on the cen­tral bank's sig­na­ture cri­sis­fight­ing tool af­ter ECB Pres­i­dent Mario Draghi sug­gested in Septem­ber that op­po­si­tion to any ac­tion would have been dan­ger­ous. Wei­d­mann, the sole voter on the Gov­ern­ing Coun­cil against so­called Out­right Mone­tary Transactions, sug­gested yes­ter­day he wasn't iso­lated.

"Of course there are other col­leagues as well who worry" about the con­se­quences of the pro­gram, Wei­d­mann said at an event in Ber­lin. "This dis­cus­sion and these con­cerns re­flect in the con­di­tion­al­ity we im­ple­mented."

The ECB is fight­ing to gain sup­port for its bond-buy­ing pro­gram in Ger­many, where some vot­ers are con­cerned the pur­chases might stoke in­fla­tion. Draghi has tried to ease op­po­si­tion by say­ing price sta­bil­ity re­mains the ECB's pri­mary goal and that in­fla­tion will fall be­low 2 per­cent next year. ECB of­fi­cials will "make sure we will never be caught off guard, we off­set the liq­uid­ity, we ster­il­ize liq­uid­ity all the time," Noyer said. "The in­fla­tion risk is ab­so­lutely none."

"We must never for­get price sta­bil­ity" has al­ways re­ferred to de­fla­tion risks as well as in­fla­tion risks, he said. "If there is no proper trans­mis­sion there is a risk of de­fla­tion." Draghi pledged to do what­ever it takes to save the euro in July and in­tro­duced the bond-buy­ing pro­gram on Sept. 6. Wei­d­mann is the only mem­ber of the ECB's Gov­ern­ing Coun­cil who voted against the plan, say­ing it is tan­ta­mount to print­ing money to fi­nance gov­ern­ments.

A Ger­man group of 5,217 plain­tiffs sued the ECB over its pro­posal to buy un­lim­ited bonds from debt-laden coun­tries to re­gain con­trol of in­ter­est rates. The law­suit was filed with the Euro­pean Union Gen­eral Court, the 27-na­tion EU's sec­ond-high­est tri­bunal, on Nov. 12.

Wei­d­mann's con­cerns were "vi­tal" to the de­sign of the OMT, ECB Chief Econ­o­mist Peter Praet told Ger­many's Han­dels­blatt news­pa­per last month.

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