ECB tells govts to step up and in­vestors to be ra­tio­nal

The Pak Banker - - COMPANIES/BOSS -

Euro­pean Cen­tral Bank of­fi­cials, pre­par­ing to con­sider fresh stim­u­lus for the euro area, warned gov­ern­ments to get mov­ing with struc­tural re­forms and told in­vestors to be re­al­is­tic about any ac­tion mon­e­tary-pol­icy mak­ers might take.

Speak­ing at a con­fer­ence in Bu­dapest, Ex­ec­u­tive Board mem­ber Benoit Coeure re­it­er­ated that the ECB will "re­view and pos­si­bly re­con­sider" its pol­icy stance at its March 10 meet­ing, while stress­ing that with­out eco­nomic re­forms the re­gion's re­cov­ery won't last.

Gov­ern­ing Coun­cil mem­ber Ewald Nowotny said he hoped mar­kets would be "more ra­tio­nal" than they were in De­cem­ber, when cen­tral-bank mea­sures fell short of ex­pec­ta­tions and sent the euro and bond yields soar­ing.

De­spite an un­prece­dented level of mon­e­tary stim­u­lus, the ECB is strug­gling to re­vive in­fla­tion as oil prices slump and China's slow­down drags on global trade.

Fac­to­ries in the euro area slashed prices of goods by the most in a year in Jan­uary, a pur­chas­ing man­agers' sur­vey by Markit Eco­nom­ics showed on Mon­day, un­der­scor­ing the risk that weak con­sumer- price pres­sures are be­com­ing in­grained.

"We have al­ways made it clear that we are ready and able to play our part," Coeure said. "But for the re­cov­ery to be­come struc­tural, and thus to in­crease growth po­ten­tial and re­duce struc­tural un­em­ploy­ment, mon­e­tary pol­icy does not suf­fice."

ECB Pres­i­dent Mario Draghi may re­peat those con­cerns when he speaks to the Euro­pean Par­lia­ment in Stras­bourg later on Mon­day. An­nounc­ing the re­view of the cen­tral bank's stim­u­lus on Jan. 21, he also said ac­tions to im­prove the busi­ness en­vi­ron­ment are "vi­tal."

While in­fla­tion in the 19-na­tion cur­rency bloc ac­cel­er­ated to 0.4 per­cent in Jan­uary, the ECB has warned that the rate may drop below zero again in com­ing months. Nowotny said new staff eco­nomic fore­casts to be pub­lished on March 10 will be key for any de­ci­sion on stim­u­lus, and warned in­vestors not to get ahead of them­selves. "In De­cem­ber, they clearly ex­pected too much and I think that should give them a cer­tain les­son," he said. "Mar­ket ex­pec­ta­tions be­came much too ex­ten­sive. So I hope there's some more ra­tio­nal ap­proach."

The ECB cut its de­posit rate by 10 ba­sis points to mi­nus 0.3 per­cent in De­cem­ber and ex­tended its bond-pur­chase pro­gram by six months to March 2017, in­creas­ing its size to at least 1.5 tril­lion euros ($1.6 tril­lion). In­vestors were dis­ap­pointed, sell­ing off the euro and the re­gion's debt.

Mar­ket fu­tures are cur­rently pric­ing in an­other 10 ba­sis-point cut to the de­posit rate at the next meet­ing and some econ­o­mists have sug­gested that the pur­chase pro­gram will be in­creased from the cur­rent 60 bil­lion euros a month.

Nowotny, who heads Aus­tria's cen­tral bank, said it is "much too early to have a dis­cus­sion" on the de­posit rate.

Coeure also urged a re­newed political com­mit­ment to strengthen the in­sti­tu­tional setup of the eco­nomic and mon­e­tary union. Meth­ods of ad­vanc­ing Euro­pean in­te­gra­tion so far have not been suf­fi­cient to foster con­sen­sus on the de­sign of eco­nomic poli­cies, and the re­gion is ill-equipped to deal with new chal­lenges such as the mi­grant cri­sis and ter­ror­ism, he said.

"We are at a point where in­te­gra­tion can­not and should not con­tinue as a tech­ni­cal and tech­no­cratic ex­er­cise," Coeure said. "It is now time for political lead­ers to take up the ba­ton, be­cause only they will be able to con­vince their elec­torates of the need for fur­ther deep­en­ing."

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