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France’s Top Banker Cautions on Oil Price Impact on Eurozone

France’s Top Banker Cautions on Oil Price Impact on EurozoneFrance’s Top Banker Cautions on Oil Price Impact on Eurozone

The European Central Bank could extend money printing, Francois Villeroy de Galhau, the head of France’s central bank, told a German newspaper on Sunday, as the long-term impact of low oil prices weighs on eurozone economies.

ECB governors from across the eurozone, including France and Germany, will meet in early March to decide whether to adjust interest rates or extend a scheme known as quantitative easing, creating money to buy government bonds in a bid to revive inflation and boost recovery.

Their decision depends largely on whether there is a further fall in flagging price inflation, used by the ECB as a barometer of the eurozone’s economic health, Reuters reported.

Speaking to German newspaper Frankfurter Allgemeine, de Galhau signaled that the impact of low oil prices could be long term.

These comments indicate that oil could dampen already low inflation by, say, reducing wage growth. This would typically require the ECB to act again to shore up the economy.

“Temporary falling oil prices alone are not a sufficient reason,” said de Galhau. “But if the low energy prices have sustainable long-term effects, we have to act. That seems to be the case, but we will see in March.”

He said that it would be possible to buy more than the €60 billion ($66 billion) of chiefly bonds it buys each month now. “We are ready to act, but we will have to see the economic data first,” he said.

ECB President Mario Draghi said last Monday that the ECB is “ready to do its part” to spur more growth, further stoking speculation that policymakers will step up their stimulus program next month.

If the eurozone’s already meager inflation weakens further, “we will not hesitate to act,” Draghi said in testimony before the European Parliament’s economic and monetary affairs committee.

 

Financialtribune.com