Italy’s central bank chief urges further easing of monetary policy – MarketWatch

Italy's central bank chief urges further easing of monetary policy – MarketWatch

Given the extremely low inflation rates in Europe, the Italian central bank governor Ignazio Visco great sympathy for the purchase of government bonds signaled. “Purchases of government bonds are in this situation, the most effective means”, the Governor of the Banca d’Italia said in an interview with the world on Sunday.

The Council of the European Central Bank would indeed various options discussed, and the sale of other securities such as corporate bonds. “But this market is not very large. In addition, there are financed primarily large corporations that already very low raise funds,” Visco.

said

The Governing Council will discuss at its next meeting on 22 January, about to embark on a government bond program. The so-called quantitative easing is controversial. Critics see dangerously close to the Forbidden state funding with the printing press. Visco discourages excessive fear of contact with respect to this measure, however, from: “This is a standard tool of monetary policy,” he said. “We call it only unconventional because it has not been used in Europe for so long.”

Visco also recalled the expectation situation which had arisen in the meantime. “The financial markets have a QE program factored in Europe already, to some extent,” he said, referring to the sometimes extremely low yields on European government bonds. “We must now deliver -. Otherwise, interest rates would immediately rise again”

Just after prices in the euro area fell by 0.2 percent in December, sees Visco the ECB under pressure to act. “This is just a single number, but it is at the end of a long series of very low inflation rates,” he said. “That’s why this situation is very critical. People could be adjusted constantly to low or even negative rates of inflation.”

While other central bankers emphasize the risk of a government bond program, provides Visco especially risks if the ECB should do nothing. “I can only warn against underestimating the macroeconomic risk if the inflation rates remain too long very low and the economy barely growing, we risk falling into a downward spiral that itself ever further strengthened -. Just called deflation,” said it.

Falling energy prices have the pressure to act for the ECB in his view, not necessarily reduced, although they could stimulate the economy. “The cheap oil helps the economy, there’s no question,” said the Italian. “On the other hand, it provides for lower prices. And that’s a problem when the inflation rates are already near the zero line. Inflation expectations are threatening to fall further.”

If the ECB buys government bonds, they should not leave the risks from Viscos view from the national central banks, as it is partially discussed. “If the respective national central bank buys for its own account, the financial conditions in Europe are falling apart even further than before,” warned Visco. “We should leave in the process, otherwise the our monetary policy applies. The risks carries the euro system as a whole”

Contact the author konjunktur.de @ dowjones.com

DJG / jhe

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