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