ECB's Jazbec says pa­tience needed for quan­ti­ta­tive eas­ing to work

The Pak Banker - - COMPANIES/BOSS -

The Euro­pean Cen­tral Bank of­fi­cials must be pa­tient for quan­ti­ta­tive eas­ing to work its way through the econ­omy and drive a pickup in in­fla­tion, Gov­ern­ing Coun­cil mem­ber Bost­jan Jazbec said.

"I think QE is work­ing, that the re­sults are there and that all other op­tions are off the ta­ble as we clearly have ev­i­dence that we are on the right track," Jazbec, the gover­nor of the Bank of Slove­nia, said in an in­ter­view on Wed­nes­day in Ljubl­jana. "Mon­e­tary pol­icy works with lags and we just need to be pa­tient and wait for the re­sults."

Even with in­fla­tion stuck at 0.2 per­cent in July, far be­low the ECB's man­date of close to 2 per­cent, Jazbec's com­ments dis­play a more re­laxed tone now that the threat of a Greek exit from the euro has re­ceded. Three weeks ago, just days af­ter that sce­nario had been averted, ECB Pres­i­dent Mario Draghi said of­fi­cials have tools to re­spond to any un­war­ranted pol­icy tight­en­ing and could use them if the price out­look de­te­ri­o­rated.

"We are on the right track to bring prices within the range that we see as ful­fill­ment of the man­date," Jazbec said. "Of course, if we don't bring in­fla­tion within our man­date range, the clear mes­sage from the ECB was that we might con­tinue" to buy bonds be­yond Septem­ber 2016, the cur­rent end-date for the QE pro­gram, he said.

For Jazbec, there are "pos­i­tive de­vel­op­ments" on in­fla­tion and re­cent data are in line with the ECB's ex­pec­ta­tions of how QE should work.

While the in­fla­tion rate held steady in July, core in­fla­tion, which strips away volatile el­e­ments such as energy and food, ac­cel­er­ated to 1 per­cent -- the fastest in 15 months.

"I don't think that we need any tools and any ad­di­tional in­stru­ments at this point," he said. "I don't see any rea­sons why we should dis­cuss any other al­ter­na­tives for some­thing that is ob­vi­ously work­ing."

The ECB is re­cov­er­ing from months of strained ne­go­ti­a­tions as Greece stood on the brink of de­fault and of an exit from the cur­rency bloc. For Jazbec, brinkman­ship be­tween the coun­try and its cred­i­tors hasn't per­ma­nently dam­aged the euro's cred­i­bil­ity.

On the con­trary, the cri­sis "proved that the way the ECB func­tions may be the bench­mark for other Euro­pean in­sti­tu­tions, par­tic­u­larly the Euro­pean Com­mis­sion."

This is be­cause the "ECB mim­ics the supra­na­tional at­ti­tude that proved to be very dif­fi­cult" among the re­gion's fi­nance min­is­ters, he said.

At the eleventh hour, Greece com­mit­ted to ex­ten­sive re­forms in ex­change for a new bailout agree­ment that pre­vented its exit from the euro area. The coun­try aims to seal the deal with its cred­i­tors within the next two weeks, in time to re­ceive funds to make a 3.2 bil­lion-euro ($3.5 bil­lion) pay­ment to the ECB on Aug. 20.

The ECB left the level of emer­gency liq­uid­ity avail­able to Greek banks un­changed on Wed­nes­day. It was last raised to 90.4 bil­lion eu­ros on July 22. "The ques­tion on what will hap­pen with Greece lies squarely with the Greek gov­ern­ment," he said. "At this point debt re­lief is not on the ta­ble. Of course, the ques­tion of the sus­tain­abil­ity of Greek debt -- and this is my per­sonal point of view -- comes af­ter cred­i­ble re­forms are in­tro­duced and con­fi­dence has been es­tab­lished."

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