Coeure Says Inflation to Converge Gradually Toward ECB Goal
(Bloomberg) -- Executive Board member Benoit Coeure said euro-area inflation will converge “only very gradually” toward the European Central Bank’s goal, justifying the need to continue providing stimulus.
Drawing a comparison with the U.S., where he noted that some fund managers anticipate an upside risk to price gains, the Executive Board member said “we see no such inflation tail risks at the current juncture.” He also said there is no concrete evidence that financial markets are starting to doubt the sustainability of the euro area’s economic expansion, and that investors aren’t questioning the ability of central banks to deliver on their inflation goals.
“An ample degree of monetary stimulus remains necessary for underlying inflation pressures to continue to build up,” Coeure, who heads the ECB’s market operations, said in a speech in Dublin. “We expect the ECB’s key interest rates to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases.”
The comments came just before data showed inflation in the currency bloc slowed to 1.3 percent at the start of the year, down from 1.4 percent in December and well short of the medium-term goal of just under 2 percent.
Coeure has shifted his own position in recent weeks, saying that he’s hopeful the latest extension of quantitative easing to September will be the last. On a panel discussion at the World Economic Forum last week in Davos, Switzerland, he said that the region could be approaching a tipping point when wages start growing faster.
His comments have helped raise expectations that policy makers will soon start changing their guidance to reflect the strongest economic growth. The euro-area economy expanded last year at the fastest pace in a decade.
His words and those of other policy makers whipsawed European bond markets this week. Dutch central bank governor Klaas Knot said QE should end “as soon as possible.” Bloomberg reported later on Monday that even hawkish Governing Council members supporting a gradual slowing of the program after its scheduled end in September and
ECB chief economist Peter Praet pushed back against the idea that the central bank was close to deciding to end its bond-buying program, saying there’s still a way to go before inflation is back on track.
The noise around the ECB’s next moves are a source of concern for Governing Council member Vitas Vasiliauskas.
“When various comments begin circulating, then everyone gets lost and risk making erroneous interpretations,” the Lithuanian central-bank governor said in Vilnius on Wednesday. “The worst thing is sending mixed signals. That’s not good practice because decisions of the Governing Council are usually taken on a consensus basis.”
Coeure, who once referred to the risk of “cacophony,” said that consensus does exist -- at least on the need to be cautious.
“There is also a very wide agreement, very broad agreement in the Governing Council” that “we have to be patient, prudent and persistent,” he told reporters in Dublin. “We are in a very robust expansion in the euro zone. That’s the reason for optimism.”
--With assistance from Milda Seputyte
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