The European Central Bank has created favourable monetary conditions for growth, but these have still not made the economy dynamic enough, ECB governing council member Jaime Caruana said today.
Mr Caruana's recognition that years of low rates have failed to kickstart euro zone growth comes as the ECB faces pressure for a cut in interest rates to boost the economy.
ECB monetary policy remained accommodative, Mr Caruana told a closed-doors meeting of the Bank of Spain's board. While the oil price "shock" had slowed the fall of inflation, medium-term inflation expectations continued to be compatible with the ECB's definition of price stability, partly as a result of sustained wage moderation, he said.
"The European Central Bank has been able to sustain favourable monetary conditions for the strengthening of activity, although ... these have so far turned out to be insufficient to achieve a satisfactory degree of dynamism," Mr Caruana said, according to a text of his speech.
The Bank of Spain governor urged global policymakers to remain vigilant to knock-on effects of the oil price rise on inflationary expectations, although he said oil's impact had been "surprisingly gentle" until now. However, he said the tightening of monetary and fiscal policies around the world should be done carefully to avoid undermining economic recovery or jolting markets.
Reviewing the global economy, Caruana stressed the "necessary re-establishment of a more normal tone of macroeconomic policies in the leading countries", saying policy had been "abnormally expansive" in recent years.
The countries that were most advanced in the economic cycle had begun raising interest rates to a more "neutral" level "and it is to be expected that the laggards in the cycle will gradually join this trend as their economies gain steam," Mr Caruana said.
The ECB has kept rates steady since June 2003, while the US Federal Reserve and other central banks have raised rates.