ECB working ‘at high speed’ on policies to fight too-low inflation

The ECB is preparing multiple measures against too-low inflation that could be used as soon as next month, policymakers said.

The central bank is working “at high speed” on a range of policy instruments, executive board member Yves Mersch said. When ECB president Mario Draghi commented on May 8 that officials are “comfortable” with taking action at their next interest-rate meeting, he was using the methods of his predecessor, Jean-Claude Trichet, to tell investors that measures are near, Mr Mersch said.

The ECB is trying to revive inflation to solidify an economic recovery after a recession and debt crisis that almost splintered the currency bloc.

While Mr Draghi kept rates at a record low last week, he said officials are “dissatisfied” with the outlook for price growth and policies from a cut in the benchmark interest rate to a negative deposit rate and asset purchases have been discussed.

The ECB next meets to set monetary policy on June 5, when it will also present revised macroeconomic forecasts through 2016. Those may show the medium-term outlook for inflation has deteriorated enough to warrant action. Officials may also decide to steer against strength in the euro, which they have said depresses inflation by curbing the price of imports.

Concern the economy will falter was reinforced yesterday by a bigger-than-expected drop in investor confidence in Germany to the lowest level since January 2013.

Germany’s Bundesbank, which has railed against some ECB policy instruments in the past, is open to a package of measures, according to two people with knowledge of the matter. Still, such support isn’t automatic, the people said, and depends on the outlook for price stability.

“On the medium-term inflation outlook, we do not believe the ECB staff projections will be lowered sufficiently to warrant large scale broad-based asset purchases,” said Anatoli Annenkov, senior European economist at Societe Generale in London.

“Many commentators, including ourselves, now look for a negative deposit rate at the June meeting.”

Inflation in the euro area has stuck at less than half the ECB’s goal of just under 2% since October.

The rate was 0.7% last month after slowing to 0.5% in March, the weakest pace in more than four years. Final April inflation data will be published today, along with the initial estimate of first-quarter gross domestic product. May inflation will be published on June 3.


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