World Economy

ECB May Not Need Stimulus Measures

ECB May Not Need Stimulus MeasuresECB May Not Need Stimulus Measures

The European Central Bank (ECB) may not need to add stimulus measures after steps in the past three months pushed down the euro, said governing council member Ignazio Visco.

“Inflation expectations have to be back where they were,” Visco said in an interview in Cairns, Australia, where he is attending a meeting of Group of 20 finance chiefs. “This doesn’t mean that there will be a next step. We have been bold enough to reduce interest rates to a level that was unexpected to the market, Bloomberg reported Sunday.”

The single currency has dropped about 6 percent since early June, when the ECB introduced a negative interest rate on excess reserves and presented a four-year lending program to fuel credit. Policy makers reduced borrowing costs further earlier this month and committed to buying asset-backed securities and covered bonds to boost the ECB’s balance sheet by as much as 1 trillion euros ($1.3 trillion).

The extent of the exchange rate’s fall is “more or less, given the moves that were done between June and September, the right response,” said Visco, who also heads Italy’s central bank. The ECB isn’t targeting any exchange-rate level, he said.


In the first of eight liquidity offers linked to banks’ loan books, dubbed TLTROs, the ECB allotted 82.6 billion euros this week, less than all predictions in a Bloomberg News survey. That’s sparked speculation among economists and investors that the ECB could be forced to resort to large-scale sovereign bond purchases to reach its goal.

“There has been some misunderstanding about the TLTROs because it has been conceived as a major failure,” Visco said. “The second tranche is more important than the first. What we have observed in a number of countries is that banks postponed borrowing until December. As far as the Italian banks are concerned, it was exactly what we expected.”

UniCredit SpA (UCG), Italy’s biggest lender, said it raised 7.8 billion euros, while Intesa Sanpaolo SpA (ISP), the second largest, took 4 billion euros.

ECB Vice President Vitor Constancio told Bloomberg News Sept. 18 that the targeted longer-term loans will lead the balance-sheet expansion. Total take-up will be “significant,” with purchases of ABS and covered bonds making a smaller contribution, he said.

ECB President Mario Draghi has committed to increase the central bank’s balance sheet toward 3 trillion euros, the size reached at the height of the sovereign debt crisis in 2012. To reach that goal, “you may need perhaps to do more if inflation remains at this very dismal level,” Visco said.

Euro-area consumer prices rose 0.4 percent from a year earlier in August, compared with the ECB’s goal of just under 2 percent. The Frankfurt-based central bank lowered its 2014 inflation forecast to 0.6 percent this month and said the rate would average 1.1 percent in 2015 and 1.4 percent in 2016.