The European Central Bank will be able to gauge in the first quarter of next year whether it needs to start buying sovereign bonds to stimulate the euro zone economy, ECB Vice President Vitor Constancio said on Wednesday.
The ECB has already begun buying covered bonds and bundled loans known as asset-backed securities (ABS) with a view to increasing the size of its balance sheet to levels seen in early 2012 - around 1 trillion euros higher than its level today.
"We have, of course, to closely monitor if the pace of its evolution is in line with that expectation," Constancio said. "In particular, during the first quarter of next year we will be able to gauge better if that is the case."
"If not, we will have to consider buying other assets, including sovereign bonds in the secondary market, the bulkier and more liquid market of securities available," he added in the text of a speech for delivery in London.
Constancio's comments are the clearest indication yet from an ECB policymaker on the timing of any decision on whether to print money to buy sovereign bonds - a policy known as quantitative easing that financial markets see as the central bank's best shot of stimulating the flagging economy.
"It would be a pure monetary policy decision, buying accordingly to our capital key, within our mandate and our legal competence," he said.
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Euro zone inflation is running at 0.4 percent - far below the ECB's target of just under 2 percent - and Constancio said it "threatens to continue on the low side for some time to come."
"The environment of low nominal growth now prevailing creates serious risks to the social and economic fabric of the euro area," he added.
Turning to financial markets, Constancio said the ECB saw "a worldwide trend for some froth in financial asset markets. Even in Europe where the trend is less marked we have some asset segments of 'localized buoyancy'."
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