The Strategist

ECB is ready to introduce additional incentives

07/02/2019 - 12:20

The European Central Bank is ready to adjust all its tools to increase inflation, but it also needs to explore a number of deeper problems that can change the course of its policies, said Olli Rehn, member of the Board of Governors of the ECB and Head of the Bank of Finland.

“The Board of Governors is ready to adjust all its instruments accordingly so that inflation continues to steadily approach our target level,” Rehn said at a conference in Helsinki.

He noted that inflation may fluctuate in the short term on both sides of the target. Earlier, Head of the ECB Mario Draghi said that the regulator could allow inflation to rise above the target level after a period of excessively low price increases.

At the same time, Rehn said that central banks are now working in new conditions that require a deeper assessment.

Speaking about the policy review, Rehn pointed out that the situation has changed significantly since the last such assessment and the ECB’s own instruments are also very different, since the central bank now relies mainly on non-traditional assets.

Meanwhile, ECB chief economist Philip Lane said that the ECB has opportunities for further policy easing if necessary.

“Our assessment is that [our] package of measures was effective and further mitigation can be achieved if it is necessary to fulfill our mandate,” Lane said at a conference in Helsinki. “Effectiveness of the policy toolkit means that we can apply additional monetary incentive measures."

Lane added that if the central bank chooses a reduction in interest rates, it will also assess whether “mitigating measures” are needed to compensate for the side effects of negative interest rates for banks.