ECB Executive Board member Benoit Coeure said Friday the European Central Bank’s decision to further cut its deposit rate into negative territory and extend the existing bond-buying program has eliminated the risk of the Eurozone slipping into deflation.
Talking to reporters in Helsinki he said, “The biggest risk to inflation is now off the table: that was the risk of deflation, the risk of self-reinforcing deflationary expectations or the risk of people permanently adjusting their medium-term expectation of inflation”. He continued, “Any time there is a risk that inflation will move too far away from 2%, we can always adjust the program, as we did last week.”
Last week the ECB cut its deposit rate from minus 0.20% to minus 0.30% and extended ‘quantitative easing’, the current bond-buying program to March 2017. The inflation rate in Eurozone was consistently low for some time and stood at merely 0.1% in November. According to ECB’s latest staff projections published Thursday, the average inflation forecast for 2017 stands at 1.6%.
Coeuré said the decision also showed that ECB is capable of adjusting the bond-buying program when risks change. “This will qualify as an adjustment to the program based on facts. It also makes a point that this is a program that can be adjusted. We continue to monitor it and whenever it is needed to adjust it, we will adjust it”.
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