The European Central Bank must keep its money taps fully open, as the euro zone economy is still in the throes of the coronavirus pandemic despite progress in vaccination campaigns, ECB policymaker Yannis Stournaras said.
ECB rate-setters will review the pace of emergency bond purchases at their June 10 meeting against an improved economic backdrop. Growth and inoculation rates are rising in the bloc as COVID-19 cases fall.
However, in an exclusive with Reuters, Stournaras said the recovery remained fragile and, with no evidence to point to an era of high inflation in the foreseeable future, it was too early for the ECB to slow down emergency bond purchases.
“Of course, there has been an acceleration in vaccinations but there are still travel restrictions so I cannot say we are out of the woods yet,” Stournaras, who is also Greece’s central bank governor, said.
With inflation forecast to stay below the ECB’s 2% target for years to come, Stournaras supported continuing the ECB’s 1.85 trillion euro Pandemic Emergency Purchase Programme (PEPP) at its current clip.
“I don’t see any reason to make any change (to the pace of PEPP) at the moment,” he said.
The purchases were jacked up in mid-March and have been running at 80 billion euros ($98 billion) a month since then and, while ECB President Christine Lagarde has signalled it is too early to discuss winding down emergency measures, some conservative members of the ECB Governing Council want them cut back.
Klaas Knot, the Dutch central bank governor, told Reuters last month the ECB could still provide stimulus to the economy via its Asset Purchase Programme (APP).
Launched in 2015, the APP excludes Greece due to its low credit rating and is currently running at 20 billion euros a month.
Stournaras said the time for giving up PEPP, which is set to run at least until March 2022, hadn’t come yet.
“I don’t think the time is right to do this shift yet,” he said. “Of course, at some point in the future this will occur, there’s no doubt about that. We have to think about a smooth transition from PEPP to APP.”
INFLATION GOAL RESET?
The Greek governor also dismissed market talk of a lasting rebound in inflation, fuelled by unprecedented stimulus in response to COVID-19 and a more tolerant monetary stance by the U.S. Federal Reserve.
“We are not in a new (inflationary) era, there’s no evidence of that,” Stournaras said. “…As the economy gets out of the pandemic, supply-side bottlenecks make their appearance but this is expected to smooth out over time.”
Analysts see euro zone price growth at 1.7% or lower through 2023. The ECB targets inflation “below but close to 2%” over an unspecified medium term.
Stournaras said the central bank was likely to change that goal to 2% this year, though policymakers had yet to agree over whether to follow the Fed, which decided last year to aim for inflation averaging 2% over time.
He also supported calls to make ECB bond purchases more environmentally friendly.
“Climate change creates volatility in the price level and in the economy,” Stournaras said. “So we have to take it into account in our models and we can use some of our instruments to affect it, such as greening our own portfolio.”
For a transcript of this interview, click on:
($1 = 0.8159 euros)