HELSINKI (Reuters) – The European Central Bank has room to ease policy further if needed and should let there be no doubt about its “absolute commitment” to meeting its inflation mandate, ECB chief economist Philip Lane said on Monday.
With growth and inflation slowing for much of this year, the ECB has already said that it may need to provide more stimulus, possibly through rate cuts and more asset purchases.
But with interest rates already at a record low and the ECB’s balance sheet at 4.7 trillion euros, critics say that the potency of its remaining tools is limited and more easing can only provide a modest boost.
“Our assessment is that (our) policy package has been effective and further easing can be provided if required to deliver our mandate,” Lane told a conference in Helsinki. “The effectiveness of the policy toolkit means that we can add further monetary accommodation.”
Lane, the newest ECB board member, added that if the bank opts for a rate cut, it will also assess whether “mitigating measures” are needed to offset the side effects of negative interest rates on banks, which transmit the bulk of its policy to the real economy.
Lane also said that it was essential for the ECB to demonstrate its commitment to its mandate, which is to keep inflation at close to but below 2 percent, a mark it has undershot since 2013.
“Especially when inflation deviates from its objective for an extended period, central banks ‒ including the ECB ‒ should adopt clear communication strategies that leave no doubt about their absolute commitment to meeting the inflation objective over the medium term,” Lane added.
Still, he noted that the ECB should remain open-minded to how it conducts policy, a potential nod to fellow Governing Council member Olli Rehn, who has long advocated a review of the bank’s policy framework.
“The ECB must always be open to new ideas and new methods, drawing from internal and external research and examples of best practice from around the world,” Lane added.
Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.