Coeure sees no reason for 'spectacular' ECB action

Tue Dec 10, 2013 6:36am EST
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FRANKFURT (Reuters) - Euro zone inflation is not undershooting the European Central Bank's target of just below 2 percent so much that it should use its heaviest artillery to try to boost prices, ECB Executive Board member Benoit Coeure said.

Coeure told a journalist club on Monday night that the ECB was ready to act, but that the euro zone was not edging towards a dangerous fall in prices. His comments were embargoed until Tuesday.

The ECB cut its interest rates to a record low of 0.25 percent last month after October inflation fell to an alarmingly low 0.7 percent, increasing fears the currency bloc would see a spiral of persistently falling prices.

"Inflation prospects are consistent with our objective, so I don't see need to use spectacular measures, such as U.S.-style large-scale asset purchases," Coeure said, adding that the ECB can buy government bonds as long as it does not do so for the purpose of financing governments.

But the Frenchman added that the ECB would keep a close eye on price developments and would be ready to act, if needed. At the same time, there was no evidence of deflation taking root.

"We have not even taken the first step towards deflation, that would be the de-anchoring of inflation expectations."

Commenting further on the inflation outlook he said that inflation would accelerate gradually to the ECB's target.

"Staff forecasts say the inflation will gradually recover and will come back towards 2 percent in 2015 and presumably back to 2 percent at some later point, but not so long after the expiration of the forecasts."

Earlier this month, the ECB released new staff economic projections that forecast inflation of 1.3 percent for 2015.   Continued...

Benoit Coeure, executive board member of the European Central Bank (ECB) gestures during an interview with Reuters in Frankfurt February 26, 2013. REUTERS/Ralph Orlowski