June 25, 2013 / 8:14 AM / 6 years ago

ECB still long way from exiting easy policy: Coeure

LONDON (Reuters) - The European Central Bank is far from exiting its accommodative monetary policy and will keep an open mind about fresh measures, which it can still deploy if needed, ECB policymaker Benoit Coeure said on Tuesday.

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

Coeure’s remarks show the ECB is not yet ready to follow the example of the U.S. Federal Reserve, the first of the world’s major central banks to lay out a plan for exiting its ultra-loose monetary measures.

While pressing markets to prepare for an eventual rise in interest rates and urging policymakers to make progress on a European banking union, Coeure made clear the ECB was not about to reverse course.

He said euro zone economic growth is expected to be weak this year and inflation to “remain clearly below 2 percent.”

“The various non-standard measures that have been introduced by the ECB to support monetary policy transmission in certain market segments will stay in place as long as necessary, and there are other measures, standard and non-standard, that we can deploy if warranted,” he said in a speech in London.

“There should be no doubts that our ‘exit’ is distant and our monetary policy is and will remain accommodative.”

The ECB left its main interest rate at a record low of 0.5 percent this month and said it had discussed a raft of options it could take if the euro zone does not emerge from recession this year.

The discussions included the possibility of pushing the bank’s deposit rate into negative territory for the first time - meaning the ECB would charge commercial banks for holding their money overnight, Coeure said.

“We’ve been preparing technically, also discussing with market participants, so we are technically ready,” he added.

The euro zone’s central bank “will look with an open mind at standard and non-standard monetary policy tools if warranted by the outlook for price stability”, Coeure said.

By contrast, Fed Chairman Ben Bernanke said last week the U.S. economy is expanding strongly enough for it to begin slowing the pace of its bond-buying later this year.

His comments rocked global markets that have grown used to central bank stimulus amid weak economic growth.

“The recent bout of volatility in global fixed income markets is excessive in view of the current economic conditions, but it can serve as a useful reminder that such developments cannot be dismissed lightly,” said Coeure.

Speaking separately on Tuesday, outgoing Bank of England Governor Mervyn King said markets had “jumped the gun” about when central banks were likely to start raising interest rates after the Fed comments.

Coeure added that the ECB needs to ensure the Fed’s plan to dial back its stimulus does not hit euro zone bonds:

“We as the ECB will also have to make sure that the level of yield and the slope of the yield curve remains appropriate for our monetary policy stance, and we have a range of standard and non-standard measures that we can use to deliver that.”


The Frenchman, a member of the ECB’s six-man Executive Board that forms the nucleus of the policymaking Governing Council, nonetheless urged euro zone governments to prepare for higher bond yields.

“Governments that are lagging in their effort to consolidate debt and deficits should keep in mind that the current levels of yields cannot be taken for granted,” he said.

While the ECB’s creation last year of a new bond-buying plan dubbed Outright Monetary Transactions helped restore investor confidence in the euro zone, Coeure wanted governments to take fresh steps to shore up the currency project.

“Progress towards a genuine Economic and Monetary Union should be confirmed ... starting with clear and predictable rules for bank resolution and with the establishment of a single resolution mechanism, complementing the single supervisory mechanism as the second pillar of the banking union,” he said.

The ECB is due to assume responsibility next year for supervising banks across the region - the first pillar of a banking union aimed at closer European financial integration.

The central bank wants governments to deliver a parallel resolution mechanism to wind down failed banks, but they have been dragging their feet on the issue.

Writing by Paul Carrel in Frankfurt

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