ECB’s ‘whatever is needed’ approach continues: Constancio

The European Central Bank (ECB) will continue to do whatever it takes to pursue its price stability objective, vice-president Vitor Constancio said in a speech on Thursday.

He also stressed the importance of other policies, however, which were needed to deliver a "lasting and sustainable improvement in economic growth prospects". In March, the ECB cut its forecast for euro zone growth to 1.4 percent in 2016 from 1.7 percent.

In a speech in Brussels Thursday, Constancio said that when looking at the ECB's controversial March 10 decision to further cut interest rates and increase quantitative easing, "it is essential to consider the global environment in which they were taken. This environment was characterized by subdued growth, historically weak trade developments and low inflationary pressures reflecting sharp falls in energy prices."

On the decisions taken last month by the ECB to cut its main refinancing rate to 0.0 percent and its deposit rate to -0.4 percent, Hans-Helmut Kotz, program director at the SAFE Policy Center and Fellow at Harvard University, told CNBC: "Any measure comes with consequences that you do not actually like… in the case of negative interest rates, it definitely puts pressure on bank earnings."


The ECB is set to release minutes from its March 10 meeting later on Thursday, and two of the bank's executive board members, Peter Praet and Benoit Coeure, may discuss them in more detail at a conference they are attending in Frankfurt.

The ECB has options, according to Kotz. "The European economy is largely an economy that is funded through the banking industry. It could go further in terms of what it calls emphasizing its enhanced credit support policies… it might even think about decreasing interest rates further," Kotz told CNBC.

"Possibly the ECB responded a little too late," he said. "But it's using its instruments to achieve its ultimate target - which is inflation rate of about 2 percent."

Former ECB member and president of the Centre for Financial Studies at Goethe University, Otmar Issing, told CNBC that the low inflation rate in the euro zone is, "mainly due to the fall in oil prices and this is a benefit for the euro-area economy which is heavily dependent on oil imports."

"My advice would be to be more relaxed, to extend the time period over which inflation should be brought back to target, the focus should be on that," he added.

Member of the German Council of Economic Experts Volker Wieland echoed Issing, telling CNBC, "If you look at a country like Germany - output is at potential, growing even faster and if for a moment you don't keep staring at the CPI (consumer price index) but actually look at the prices of what's produced in our countries, then in Germany, GDP inflation... is at 2 percent, in the euro-area it's at one percent so there's no reason to panic and that's why I think this policy has gone too far."

European Union flags in front of the headquarters of the European Central Bank in Frankfurt am Main, Germany.
Daniel Roland | AFP | Getty Images
European Union flags in front of the headquarters of the European Central Bank in Frankfurt am Main, Germany.

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