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The European Central Bank’s chief economist Philip Lane said policies are “in good shape” for the baseline scenario of improving conditions over the next one or two years, but further rate cuts can’t be ruled out.
“Under the most likely scenario, we think the current policies are in good shape,” he said in an interview broadcast on Saturday on Italy’s Sky TG24. The scenarios where “more dramatic policies” are required such as “a severe negative shock, a big recession” are not the baseline case, he added.
Earlier this week, Lane said the central bank is nearing a decision to launch a review of its policy strategy as officials struggle to boost inflation despite years of massive stimulus. In September, the ECB decided to cut rates deeper below zero and to restart the quantitative-easing program, pledging to keep buying assets until inflation is firmly within its target.
“If it is necessary to put the rate lower, we will be prepared to do so,” Lane said in the interview. “It’s a very important message and this goes back to the wider discussion,” he said, adding that “of course, everyone agrees at some level the negative rate will not be helpful. But our assessment is we are not at that level now.”
In her first major speech, ECB President Christine Lagarde called for a new policy mix, saying public investment should be stepped up to ease the burden on monetary stimulus and ensure the region can thrive in an uncertain world.
READ: Lane Says ECB Will Decide to Launch Policy Review Fairly Soon
Lane also said:
On inflation: “We do not find it acceptable to have inflation around 1.6%. So 1.6% is not close to 2%. That is important.”On the European Stability Mechanism: “To argue that under zero circumstances there can be a sovereign debt restructuring is not plausible.”
--With assistance from Alessandro Speciale.
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