Another round of European Central Bank speakers will command attention today with disappearing inflation fuelling talk of further extraordinary policy moves.
Chief economist Peter Praet, who last week raised the prospect of the ECB starting outright asset purchases (QE by another name) if things got too bad, is speaking at Euro Finance Week in Frankfurt along with Vitor Constancio and the Bundesbank’s Andreas Dombret, while Joerg Asmussen makes an appearance in Berlin.
We know a quarter of the ECB Governing Council didn’t want to cut interest rates (a move which Praet proposed) two weeks ago and more glaring differences could be about to emerge. Printing money would be hugely difficult for German policymakers and their allies to countenance.
If anything more is done, it is most likely to be a new round of long-term liquidity pumped into the banking system – a repeat of last year’s LTROs. A negative deposit rate to push banks to lend more is not impossible but the ECB has been reluctant so far and there are problems in terms of distorting the money market. Today’s line-up of speakers reflects both sides of the debate.
On Monday, ECB policymaker Ewald Nowotny said there was no need for an immediate policy response to below-target inflation. The consensus is that any action will not come until next year.