ECB Risks to Growth Balanced

The European Central Bank will soon be able to adopt a more optimistic tone on the eurozone economy—a possible first step in winding down stimulus—according to Executive Board member Yves Mersch.

“The recovery in the eurozone is gaining more and more traction,” Mersch said in a speech in Tokyo on Monday. “The confirmation of a broadly balanced risk outlook for growth is within reach,” Bloomberg reported.

The increasing resilience of the currency bloc in recent months has prompted some ECB officials to publicly debate when they might start to discuss ending asset purchases and raising interest rates. Mersch said that while policy makers don’t want to change their stated policy measures, they could review how well the tools work together.

“The governing council is convinced of the need to continue an accommodative monetary policy stance without deviation from the announced measures under implementation to be expected,” he said. “But we could examine the interaction of our different policy measures and their functioning in a new environment of balanced prospects, as opposed to the environment of deflationary risks that prevailed when they were first introduced.”

Mersch didn’t give specific policy options, and his adviser Juergen Schaaf declined to comment when asked to elaborate on what was meant by the reference to examining the interaction of measures.

The ECB currently provides forward guidance that it expects rates to remain at present or lower levels until well past the end of its asset-purchase program, which is scheduled to run until at least the end of this year. Mersch argued in February that the reference to even-lower rates was probably no longer necessary.

In his speech on Monday, he said that unconventional measures should be used for no longer than necessary as they eventually weigh on bank profitability. He also cited a Bank for International Settlements study that found nominal rates affect monetary policy transmission independently of real rates, and that keeping them persistently low might damp spending.

The ECB’s deposit rate is a record-low minus 0.4%.

Mersch spoke the day after Emmanuel Macron was proclaimed the winner of France’s presidential election, averting an anti-euro government that could have destabilized the currency bloc. His speech also came as data showed factory orders in Germany, the region’s largest economy, rising for a second month—led by demand from the eurozone.