ECB chief economist Peter Praet interview with Publico 23 May 2016
- very low inflation with economic slack is a dangerous cocktail
- interest rates still in ECB toolbox
- ECB not discussing helicopter money
- risks of de-anchoring have increased
Nothing new really. Euro unfazed. EURUSD 1.1227 EURGBP 0.7735 EURJPY 123.21
- Portugal has fundamental long-term growth issues
- will not comment in when Portugal will reach QE limit
Says Praet in answer to the following questions:
Does the ECB have the tools to face another shock?
The lesson we have drawn from our experience of the last few years is that we had the capacity to decide. We have a Governing Council with 19 Governors and six Board Members and we could make a decision. We could act when it was needed. We never had a paralysis problem or a chaotic decision-making process. We always had quite strong agreement on decisions actually. Not always unanimity, but very strong support.
And do you still have the instruments that are needed?
We have shown in the past that we can be very creative within our mandate. When people ask: "Are you ready for a new shock?", I always answer: trust us, we always find the means within the scope of our mandate. Some of the measures we took in March, such as TLTRO II and the purchase of corporate bonds, have not even started being implemented. So we still have accommodation in the pipeline.
On interest rates, can the ECB go even further?
In our guidance on interest rates we have said that rates will remain at present or lower levels. So this means that interest rates are still in the tool box. The question is of course the conditions under which we would decide to use that instrument, because it is clear that the negative rates at some point have also side effects that start to become more important, namely on the profitability of banks. But, on balance, the positive impact is dominating, that was our judgement.
Full interview here
