Nowotny: Eurozone inflation may turn negative

Inflation in the eurozone 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 yesterday.

“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 an economic conference, adding that 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 €1tn-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... there are limits to the effectiveness of monetary policy.”

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.

Reuters