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 Euro zone inflation is running at 0.5 percent — far below the ECB's
target of just under 2 percent over the medium term.
The ECB opened the door after its policy meeting earlier this month
to turning on its money-printing presses to keep inflation from
staying too low, though it shows no sign of embarking on such
quantitative easing (QE) just yet.
"Asset purchases are an instrument that we are ready to use if we
deem necessary," Benoit Coeure, who sits on the ECB's six-member
Executive Board, said a speech at a conference organized by the
International Monetary Fund.
"Further monetary easing is ... not excluded, but remains contingent
on outcomes," Coeure said. "If such easing is called for, the
Governing Council is unanimous in its commitment to use also
unconventional instruments within its mandate."
Coeure said the ECB would have to decide whether asset buys would be
useful and added what he called "a few qualifying remarks" about
possible targeted asset purchases by the ECB.
"In practice, purchases would naturally be linked to the interest
rate maturities that are most important for firms' and households'
investment and consumption decisions," he said.
"In the euro area, this tends to be the intermediate to longer part
of the yield curve," he added.
The fragmented nature of the bloc's economy meant that to achieve
reduced borrowing costs by similar amounts across the euro zone,
"segmentation would have to be taken into consideration in our
strategy" with an asset-buying program.
This suggests the ECB would fine-tine its program to target
different assets in different countries, though Coeure said the ECB
would have to guard against "operations that unduly distort market
allocations".
Several ECB policymakers have deep reservations about pursuing a
U.S.-style program of sovereign asset purchases.
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Coeure said the fragmentation of the euro zone economy meant
purchases of a single asset class, such as government bonds, could
not be assumed to affect interest rates across all asset classes.
With a view to unclogging lending to smaller businesses in the euro
zone, the ECB is scrambling to boost Europe's securitized debt
market — on which it could intervene.
In the strongly bank-dependent euro zone economy, a more active
market for asset-backed securities (ABS) would help banks lighten
the load on their balance sheets and enable them to lend more.
Coeure did not single out which assets the ECB could buy but said:
"Overall, the yardstick for the success of any targeted asset
purchases would not be the size of our balance sheet, but the
observable effect of our operations on term premia across markets
and jurisdictions."
"Or put differently, asset purchases in the euro area would not be
about quantity, but about price," he added.
(Writing by Paul Carrel; editing by Eric Walsh
and Keiron
Henderson)
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