ALPBACH, Austria (Reuters) - Inflation in the euro zone may enter negative territory in the coming months but the European Central Bank will stick to its “steady hand” policy, ECB Governing Council member Ewald Nowotny said on Friday.
“It is very possible that we in the euro area will in the next month or months get into negative territory once or twice,” Nowotny told reporters at an economic conference, saying this would be driven by low oil and energy prices.
“The central bank has a mid-term orientation, which means that we don’t react to every small change.”
The ECB cut its growth and inflation forecasts on Thursday, warning of possible further trouble from China and paving the way for an expansion of its already massive 1 trillion-euro-plus asset-buying programme.
“Of course there is a number of theoretical possibilities to set additional impulses, be it in terms of time frame or volume,” he said of the ECB’s quantitative easing programme, adding that theoretically different assets could be bought.
“It’s clear that of course that there are limits to the effectiveness of monetary policy,” he added.
Nowotny said more flexible fiscal policies also had to play a role, adding it was important not to force countries such as Spain to cut their deficit too harshly in order not to endanger their restructuring processes.
“It makes sense in this economic situation to see a certain macroeconomic flexibility in terms of the stability pact,” he said.
Reporting by Shadia Nasralla; Editing by Michael Shields, Francois Murphy and Alison Williams