ECB’s Noyer:
- Weak European inflation is despite accommodative monetary policy
- When policy rates go to zero, central banks must resort to unconventional measures to avoid involuntary policy tightening
- Very low inflation can aggravate situation because this increases real interest rates
- Monetary policy must aim at influencing both nominal rates and inflation expectations
- ECB’s purchases of covered bonds, Australian Bureau of Statistics will ease bank funding conditions, bring down risk premiums on private assets
- The ECB’s action on nominal interest rates has been strong and efficient
- Governing council has unanimously stated commitment to using additional unconventional policy within its mandate if needed to fight low inflation
- Governing council made unanimous commitment to protect against misperception ECB is more tolerant of low inflation
- Governing council statement on balance sheet is clear indication further policy action will not be limited by quantitative restraints
- Communication about balance sheet size can help bring inflation expectations more in line with ECB’s definition of price stability
- Japan benefits from high wage flexibility, which helps competitiveness but may increase vulnerability to deflation … whereas in Europe, nominal wages are rigid and keep growing, which provides protection against deflation risk
Headlines via Reuters and Bloomberg
Don’t worry, the Bank of France head honcho hasn’t got out of bed early … Noyer is speaking at the Paris EUROPLACE International Financial Forum in Tokyo.
