ECB ready to ex­pand QE if needed on in­fla­tion risks, says Praet

The Pak Banker - - FRONT PAGE -

The Euro­pean Cen­tral Bank is ready to ex­pand or ex­tend its bond-buy­ing pro­gram if needed as a slump in com­mod­ity prices and risks to global eco­nomic growth threaten its in­fla­tion goal, said Ex­ec­u­tive Board mem­ber Peter Praet.

"Re­cent de­vel­op­ments in the world econ­omy and in com­mod­ity mar­kets have in­creased the down­side risk of achiev­ing the sus­tain­able in­fla­tion path to­ward 2 per­cent," Praet told re­porters in Mannheim, Ger­many. "There should be no am­bi­gu­ity on the will­ing­ness and abil­ity of the Gov­ern­ing Coun­cil to act if needed."

The euro weak­ened af­ter the com­ments, which echo re­marks by ECB Vice Pres­i­dent Vi­tor Con­stan­cio on Tues­day and come just a week be­fore the Gov­ern­ing Coun­cil will hold its next pol­icy meet­ing. In­fla­tion in the euro area was just 0.2 per­cent in July, and the slow­down in China's econ­omy, re­newed slump in oil prices and stock­mar­ket tur­moil could add down­ward pres­sure.

The Frank­furt-based ECB is cur­rently buy­ing 60 bil­lion eu­ros ($69 bil­lion) a month of public­sec­tor and cor­po­rate bonds and as­set-backed se­cu­ri­ties un­der its quan­ti­ta­tive-eas­ing pro­gram, which is in­tended to run un­til Septem­ber 2016. Praet said this could be ad­justed if needed.

The QE pro­gram "pro­vides suf­fi­cient flex­i­bil­ity to do so, in par­tic­u­lar in terms of size, com­po­si­tion and length," Praet said.

The euro fell 1 per­cent to $1.1406 as of 1:10 p.m. Lon­don time. The latest threats to the global econ­omy and in­fla­tion will also dom­i­nate the gath­er­ing of cen­tral bankers at the Kansas City Fed­eral Re­serve's an­nual Jack­son Hole re­treat in Wy­oming on Fri­day and Satur­day. The theme at the event, where at­ten­dees in­clude Fed Vice Chair­man Stan­ley Fis­cher and Bank of Eng­land Gover­nor Mark Car­ney, is in­fla­tion and mon­e­tary pol­icy. At the ECB, Pres­i­dent Mario Draghi will un­veil new euro-zone in­fla­tion and growth pro­jec­tions af­ter the Gov­ern­ing Coun­cil meet­ing next week. Praet said staff are fi­nal­iz­ing the new fore­casts and they "will serve as the ba­sis of dis­cus­sion." Praet also com­mented on the cur­rent mar­ket tur­moil, which has seen Chi­nese stocks suf­fer their steep­est five-day drop since 1996. Euro­pean shares de­clined on Wed­nes­day, with the Stoxx Europe 600 In­dex fall­ing for a fifth time in six days.

"We have to take some dis­tance from the short-term volatil­ity of the mar­ket," Praet said. "From the mon­e­tary-pol­icy per­spec­tive, we will have to think about the con­se­quences in the pric­ing of risk."

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