No Need to Cut Rates Now, Says ECB Council Member
Comments from Ardo Hansson suggest additional stimulus is not universally supported
TALLINN, Estonia—There is no need at the current juncture for the European Central Bank to reduce its policy rates, including the deposit rate, the head of euro member Estonia’s central bank said in an interview on Wednesday.
The comments by ECB governing council member Ardo Hansson suggest that additional ECB stimulus, which is widely expected by economists to be announced at the bank’s Dec. 3 meeting, is not universally supported within the ECB’s 25-person governing council.
Other central bankers, particularly from the eurozone’s Baltic region, have expressed skepticism about the need for additional easy-money policies, though these voices are likely not numerous enough to block any such moves should top officials want to press forward.
Mr. Hansson said that lowering the ECB’s deposit rate further from the current -0.2% can be discussed and technically it is possible, but so far there is no proposal on the table.
“Knowing what I know now, I don’t think we should take that step,” Mr. Hansson said. “But if the trend in the next few weeks turns much negative, then every option is technically possible to analyze, but in the end it has to be a pretty thorough analysis."
The ECB’s deposit rate has stood at -0.2% since September 2014. At that time, ECB President Mario Draghi signaled it would go no lower. But he changed tack after the ECB’s meeting last month, saying that lowering it was discussed.
With a negative deposit rate, the ECB effectively charges financial institutions to store surplus funds at the central bank. The measure typically has a pair of benefits: spurring banks to lend to the private sector; and weakening the exchange rate.
Hopes for additional ECB stimulus have been fanned by low inflation—consumer prices were flat annually last month, well below the ECB’s target near 2%—and signs that the eurozone’s recovery remains lackluster. Still, Mr. Hansson’s comments suggested that there is little evidence the region’s outlook has changed enough in the past few weeks to justify additional stimulus.
“We have to see how the incoming data look and look at the forecast when it emerges in December to see if there’s a fundamental need to revisit” the current projections, Mr. Hansson said.
He added that most of the indicators, such as the latest inflation and retail sales data, released since the ECB’s last meeting in Malta on Oct. 22 have been more positive than negative.
“I don’t see the situation so pessimistically,” Mr. Hansson said. “Had it been that the news coming out of Malta would be systematically negative, I think it would be different.”
In particular, he said that inflation should start rising in the coming months as the effects of steep drops in energy prices drop out of the data.
“Inflation numbers in December and January should show sharp increase in headline inflation because of the erosion of the base effect related to the energy prices. That would be interesting and important to see how big that increase in headline inflation is and how that affects the outlook and expectations,” he said.
Mr. Hansson, a known skeptic of the ECB’s broad-based asset-purchase program, known as quantitative easing, or QE, did not want to comment on whether it should be increased in December. “We still have three weeks until that meeting,” he said.
Under the program launched in March, the central bank is buying €60 billion ($65 million) in mostly government bonds a month. The program is due to run until at least September 2016, but Mr. Draghi has signaled that the central bank could expand it at its next meeting in early December.
Mr. Hansson said that because the program’s end date is still some 10-11 months away, there is “plenty of time” and “no pressing need” for the council to make a decision next month on whether to extend it or not.
“The clock is not ticking in the way that would force us to decide now,” Mr. Hansson said. “I think it would make more sense to think about it a bit later, when we get closer to the announced end of the program to see what comes next. Because then you have more information about how things are progressing.”
He added that it would "make a lot of sense” to start talking about it about six months before the program ends.
Brian Blackstone contributed to this article.