The European Central Bank is missing its inflation target and will have to ramp up stimulus measures, according to the chief of Austria’s central bank.
Ewald Nowotny, who sits on the board of the ECB, said it was “quite obvious” that monetary policymakers would now embark on further measures to lift inflation less than a year after the start of itsunprecedented quantitative easing (QE) programme.
The comments, from the usually hawkish Mr Nowotny, mark the first time one of Europe’s senior central bankers has all but confirmed more QE is coming. The remarks saw the single currency fall by as much as 0.6pc against the dollar to $1.142 in early morning trading.
The “ECB is using the monetary policy instruments available – but it is quite obvious that in the current macroeconomic situations, additional sets of instruments are necessary”, said Mr Nowotny at a conference in Warsaw.
He said these tools should include the need for governments to carry out structural reforms to boost competitiveness.
“The severe crisis we experienced has reminded policymakers of the pitfalls of an incomplete monetary union,” he added.
Inflation is only forecast to hit 0.1pc in the eurozone this year, and 1.1pc in 2016 – undershooting its 2pc target rate, despite the ECB’s decision to buy €1.1 trillion of bonds in March this year.
Along with this disappointing headline number, Mr Nowotny said core inflation – which strips out volatile elements such as energy – was also “clearly below target”.
“It is obvious that under such a constellations we need stronger economic growth, which should help reduce unemployment and bring us closer to the goal of price stability,” he said.
“Mr Nowotny’s comments differ from the recent ‘wait & see’ mantra coming from several ECB policymakers including President Mario Draghi regarding the need for more stimulative action,” said Howard Archer at IHS.
Thurday’s depreciation in the euro will be welcome news for eurozone officials. The single currency has been appreciating in recent weeks over concerns about the first US interest rate rise in nine years.
Rating’s agency Standard & Poor’s predict the ECB will need to more than double its stimulus package to more than €2.4bn over the next two years.
The first wave of QE is set to be announced at the Bank’s December monthly meeting, said Steven Saywell at BNP Paribas.