© Bloomberg. Pedestrians walk past stacked chairs outside a closed cafe in Plaza del Angel in Madrid, Spain, Thursday, October 8, 2020. France, Spain and the Czech Republic have seen a record increase in coronavirus cases, highlighting the alarm in Europe as it struggles to control the pandemic. Photographer: Paul Hanna / Bloomberg
The European Central Bank is not happy with the inflation outlook and will decide “meeting by meeting” whether more monetary stimulus is needed, chief economist Philip Lane said in an interview with the Wall Street Journal.
Lane highlighted the data that will arrive in the coming weeks that will help policymakers make their decision, sidestepping the question of whether the forecast updated in December could be a trigger.
“I wouldn’t focus on just one meeting,” Lane said. “It is not the case that we are only looking at formal projection cycles.”
Economists widely expect the ECB to expand its emergency asset purchase program by 1.35 trillion euros ($ 1.6 trillion) by the end of the year. Policymakers have publicly disagreed on the need for more support, board member Fabio Panetta saying the risk of doing too much is less than being “too shy” and the Bundesbank president , Jens Weidmann, warns against the presumption that the central bank would act.
The eurozone’s inflation rate has been negative since August and the ECB currently forecasts the measure to rise to 1.3% in 2022, well below its target of just under 2%.
“The current level of inflation remains far from our target,” Lane told the WSJ. “We don’t think this is a satisfactory inflation outlook.”
Members of the Governing Council of Italy and Slovakia reiterated his point of view.
Ignazio Visco said in a separate interview with Il Corriere della Sera that monetary policy “must be expansive and remain so for a long time”.
“Thanks to our monetary policy, we are able to intervene effectively to overcome deflation,” he said.
Peter Kazimir told the Hospodarske Noviny newspaper that the ECB would do “anything” to raise inflation.
Lane said that although the economy of the 19 countries will continue to recover in the fourth quarter, output at the end of the year will still be 5% below the level at the end of 2019. “What is true is that the next phase is going to be more difficult, ”he said.
The exchange rate is only one factor in evaluating the economy, he said. Equally important are China’s “significant” recovery, an improved outlook for the global economy that will benefit the eurozone’s manufacturing sector, and strong political support around the world.
“The exchange rate is important, but the biggest global problem is the state of global demand, and this may have recovered better than expected,” Lane said.
(Updates to the ECB’s Kazimir commentary starting in the seventh paragraph.)
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