Gouverneur Nowotny – Interview mit Reuters Insider

18. Februar 2014

Gouverneur Nowotny spricht über mögliche „Selbstkorrektur“ von Inflation und Wechselkurs

By Marc Jones and Mike Peacock

LONDON, Feb 19 (Reuters) - Low euro zone inflation and the strong euro could both start to self-correct this year without requiring any action from the European Central Bank, one of its policymakers Ewald Nowotny said in an interview.

Speaking to Reuters on Tuesday the Austrian central bank chief did, however, back plans to keep the banking system topped up with cheap funding.

The ECB meets next month armed with new staff forecasts that for the first time will stretch out as far as 2016.

Economists expect them to show inflation, currently running at just 0.7 percent, staying well below the bank's preferred level of just under 2 percent all the way out.

"One could expect that if the real economy is getting up and if we see that in Germany wage increases are quite substantial, there might be a certain self-correcting trend (in inflation)," Nowotny said, adding that it was too early to say for certain.

"So we will see whether this needs some specific action or whether ... there would be a merit for waiting."

Some German workers, backed by powerful unions, are calling for wage increases of more than 5 percent this year although they have generally settled for less after negotiating.

Europe did have advantages over countries like Japan where falling prices became entrenched for years.

"Fortunately we do not have a deflationary psychology in Europe. I'm pretty sure this will not be a longer-term trend because I think this is due to very special circumstances," Nowotny said.

One of the additional downward pressures on inflation has been this year's strengthening of the euro against a backdrop of emerging market turbulence which is making imports as well as key energy costs cheaper.

Nowotny said that could also reverse of its own accord, adding that the bank would not in any case resort to currency market intervention.

"Again I'm not sure whether this might not be a case for some self-correcting market movements. I could imagine a situation where during this year there are some forces that could lead to an appreciation of the dollar again."



Nowotny said he did not believe a large-scale government bond buying programme akin to the Federal Reserve's would be easy for the ECB due to rules forbidding it from state financing.

"I would say that a QE policy Fed-style would be rather difficult to include in our mandate," he said.

He was also personally sceptical about the merits of cutting into negative territory the rate the ECB offers banks to park funds with it.

But he acknowledged that it was up for debate and backed Monday's call from traditional policy ally the Bundesbank to keep the amount of cheap funding in the banking system topped up.

The proposed move would see the ECB no longer drain around 170 billion euros to neutralise the money it spent on Greek and other debt-strained countries' bonds under its Securities Markets Programme (SMP) at the height of the euro crisis.

"I think stopping the sterilisation of the SMP purchases would be a rather obvious choice. It would be of limited volume but anyhow it would go in the right direction," Nowotny said.

When the ECB bought the bonds it made much of the fact it was not the same as the Fed's government bond purchases with new money and did not break the taboo of financing governments.

There were good reasons to make the shift now, Nowotny said, but the ECB had to make sure there was no hit to its credibility and would have to get the backing of all its policymakers.

"For me it is extremely important if we take this decision it should really be carried by all members.

"I do not think it is a big credibility problem but ... if there was even a small doubt about credibility I don't think it would be worth while.

"I think we are pretty close (to getting unanimity) I haven't heard many critical voices but still this is something that has to be reviewed very carefully," he said.

He also urged a careful approach to next year's deadline for final repayments of the ultra-cheap, long term loans the ECB handed out to banks at the peak of the crisis.

"My own position, and I think this is shared by many of my colleagues, is that we have to be rather cautious so there should be no disruptive movements from the side of monetary policy.

"There always should be some clear signals that, as long as needed of course, we have a rather adaptive policy stance and this is also to be included in the forward guidance the ECB is giving."