Central Banks

ECB's Praet: There’s no ‘plan B’ for inflation target

A senior ECB (European Central Bank) policymaker has backed the central bank's plan to kick-start inflation in the euro zone.

In an interview with Belgium's Knack magazine published Wednesday, ECB Executive Board Member Peter Praet, said there was no "plan B" should the bank's QE (quantitative easing) and low interest rate policy fail to produce results.

"If the ECB had not taken the measures that it did, we would be in a depression; I'm convinced of that. And a depression would be much worse than what we are experiencing today and worse than what we went through over the past decade," he said.

Peter Praet

Inflation in the euro zone missed expectations in December and the latest ECB forecasts admit the 2 percent target won't be reached before the end of 2017.

In the article, Praet remained coy on when he expected to see significant price growth.

"The point at which we will reach 2 percent is constantly postponed, because all kinds of things are happening that are dampening inflation."

However, Praet insisted that pumping money into the system is having a positive effect. Praet also said the stimulus would definitely drive up inflation towards the target 2 percent, adding: "If you print enough money, you always get inflation. Always."

The ECB's chief economist also said the bank would continue its accommodative stance until March 2017 and longer if necessary.

QE effect on the euro

Has QE failed to weaken the euro?
Has QE failed to weaken the euro?

Many believe the inflation mandate is not the only target of the ECB and the bank is equally focused on lowering the value of the euro against major trading currencies. ECB President Mario Draghi has consistently denied that this is the case, however.

Neil Dwane, chief equities investment officer for Europe at Allianz Global Investors says the Federal Reserve and the ECB have particular thresholds at where the euro should trade against the dollar.

"We think it's kind of in a range between 1.05 and 1.15. At 1.15, Mario Draghi starts to become more vociferous. At 1.05 you hear the Federal Reserve beginning to talk about it."

Dwane added that to get to parity or lower, the dollar would need to strengthen considerably.