FRANKFURT (Reuters) - The European Central Bank is not expected to announce any new measures on Thursday to boost the euro zone economy, although inflation dropping almost to zero could well prompt active discussion about stimulus.
Following are highlights of ECB policymakers’ comments since the March 6 meeting.
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”With regard to the rate of inflation at the moment, the euro area is not in a self-enforcing downward spiral of price decreases, which is nominally the definition of deflation.
”Do we have any evidence that people are actually postponing their spending plans? We don’t see any evidence of that.
“If you want to tackle the issues with traditional monetary policy, then you should be able to cut rates further. We are at low levels but we have not exhausted our maneuvering room. It’s not huge, but it’s not exhausted. The question of negative deposit rates, in my mind, isn’t any longer a controversial issue.”
”As for assets purchases, we must do what our legal framework allows and we must assess the size of our balance sheet and risks. The central bank is always able to buy from the secondary markets.
”The risk that long-term inflation expectations become detached from price stability must be countered with determination.
”Regarding deflation in the euro zone, of course there are higher deflationary risks which we perceive in the ECB. That is the reason why we are preparing additional non-standard measures ... to avoid getting into a deflationary environment. There are a number of members of the ECB Council who are ready to take bold steps, of course, if needed.
On quantitative easing: ”This does not mean that a QE program is generally out of the question. But we have to ensure that the prohibition of monetary financing is respected. ... We need to discuss this and ideally achieve a common view.
“Of course any private or public assets that we might buy would have to meet certain quality standards.”
On a negative deposit rate: “If you wanted to counter the consequences of a strong appreciation of the euro for the inflation outlook, negative rates would, however, appear to be a more appropriate measure than others. But we are talking about hypothetical scenarios here and not about imminent decisions.”
On tying interest-rate policy to specific economic thresholds as part of the ECB’s forward guidance: ”We think it would not be useful.
On QE: ”I would only not rule it out categorically in case of a large negative shock, like a deflationary downward spiral. But even in that situation, we would have a nicely filled tool box to deploy other measures first.
”We will start to change our interest rate policy when the necessary conditions exist.
On deflation: ”At present, risks of deflation ... are quite limited. ... But the longer inflation remains low, the higher the probability of such risks emerging. That is why the ECB has been preparing additional non-standard monetary policy measures to guard against such a contingency and why it stands ready to take further decisive action if needed.
”Our forward guidance therefore creates a de facto loosening of policy stance, as real interest rates are set to fall over the projection horizon.
”At this moment there is no reason for further unconventional measures because we see the deflation risk as very limited. ... I don’t think it (deflation) will get out of hand.
”Unconventional measures, some of which would take us into new territory, would have to be discussed, and in my view there are some very important legal issues there.
”An appreciation of the euro can lead to a change in inflation outlook, which will then have to be taken into account in our forecasts and monetary policy reaction.
”The Governing Council of the ECB expects interest rates to stay at present or lower levels for an extended period of time, while inflation should rise towards 2 percent over our projection horizon. This implies that real interest rates for borrowers will progressively fall as inflation rises. And we stand ready to act if this scenario does not materialize.
”We will act if we think it is necessary to act. We are not there yet.
”Economic uncertainty has increased. So, too, has our toolbox, which now also includes various non-standard measures - which we are ready to use to achieve our price stability mandate.
”In its announcements, the ECB has said that it will maintain its accommodative monetary policy. ... Depending on events, there may be new measures. If the euro keeps appreciating against the dollar, that could lead to additional measures.
On reviving the euro zone market for securitized loans, especially for small- and medium-sized companies: ”It is probably outside of monetary policy. It is a far-reaching project. It is not for the ECB to lead it, we can support it. It is for the EU Commission to lead it.
”We don’t see deflation in the euro zone. We see it as a risk.
“We have room left to act. The deposit rate could be negative, for example. That’s at least a possibility depending on whether the underlying factors we observe would call for this sort of measure.”
On the ECB’s yet-to-be-used government bond purchase program, dubbed OMT: ”Overall, I am a little bit critical about the incentives structure offered by the OMT. I do see some legal questions coming up.
“Monetary policy should remain active because persistently low inflation threatens the achievement of price stability as commonly defined by all major central banks today.”
”The recent appreciation of the euro has had indeed a strong disinflationary impact.
Compiled by Frankfurt Newsroom; Editing by Gareth Jones