European Central Bank governing council member Ewald Nowotny said policy makers must treat the threat of deflation seriously and should not delay a response.
While the euro area is not in a situation where price declines lead to postponed spending, “it is important that one takes deflation risks seriously and addresses them,” Mr Nowotny, who is also governor of the Austrian central bank, said during a panel discussion late yesterday in Vienna. “We shouldn’t wait too long with a reaction.”
The ECB is preparing to discuss large-scale asset purchases at a January 22nd meeting after a slump in oil prices sparked the first decline in annual consumer prices in more than five years.
Policy makers disagree over whether so-called quantitative easing is needed, with officials including Bundesbank president Jens Weidmann arguing against it and others such as ECB chief economist Peter Praet pressing ahead.
Mr Nowotny said the governing council is discussing several options that include purchases of government and corporate bonds. The group is also debating whether to set a target size, and whether the risks related to any purchases will be shared among national central banks, he said.
The ECB is ready to decide on QE this month but that “doesn’t necessarily have to mean that we will actually take a decision,” executive board member Benoit Coeure told Die Welt in an interview published today. It’s “possible but not recommendable” to embark on QE with only a narrow majority among Governing Council members, he said.
French council member Christian Noyer signaled openness for making national central banks responsible for what they buy as a way to build consensus around QE. “The general principle, and I think it is a good one, is that we share income and risk,” the Banque de France governor said in an interview with Germany’s Handelsblatt published yesterday.
“But when it appears to be preferable we can and we have departed from it in very specific cases. I am pragmatic about that.”
Nowotny also said that it is “extremely important that there are no legal concerns” regarding QE. The European Court of Justice will issue a non-binding
opinion on an earlier bond-purchase plan tomorrow that may affect any program in the works.
Reuters
