Continuing Accommodative Policy must – ECB’s Liikanen

by Jonathan Adams

A member of the ECB’s governing council, Erkki Liikanen, said that the European Central Bank must continue its accommodative monetary policy to achieve its inflation goal.

He was talking to reporters on Thursday, he said, “We must be strong and ready to act, whatever happens that endangers the implementation of this target”. He added that if necessary, the ECB’s €60 billion ($65.73 billion) a month bond-buying program could go beyond the new end date of March 2017.

Liikanen said, “We need to get, in a sustainable manner, to a situation where we are in line with the price stability target. And there the situation is clear—we need to continue this very accommodative monetary policy”. The comments come almost a week after ECB further cut the already negative deposit rate to -0.3% from -0.2%. It declared the extension to its bond-buying program from September 2016 to March 2017. The ECB widened the bond-pool that can be purchased to include regional and local bonds along with the central government bonds.

“There was a very broad majority in favour of the decision. This is consistent with our earlier forward guidance commitment,” he said. “It was an important, substantial reinforcement of the policies, I was supporting the decision”.

He confirmed ECB’s commitment to price stability target and believes in achieving stable inflation close to the 2% mark but not more. The rate of inflation in the Eurozone was just 0.1% in November which follows the very low figures continuing for some time. The average inflation is forecast at only 1.6% in 2017 according to the ECB’s recent staff projections published last Thursday.

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