No ‘plan B’ for ECB despite still low inflation: Praet

No ‘plan B’ for ECB despite still low inflation: Praet

The European Central Bank’s money-printing plan has so far failed to drive up inflation but the bank does not have an alternative “plan B”, ECB Executive Board member Peter Praet said in a magazine interview published on Wednesday.

Praet said he remained confident that the stimulus would drive up inflation however, adding: “If you print enough money, you always get inflation. Always.”

The ECB eased its policy further last month to combat stubbornly low inflation, cutting its deposit rate deeper into negative territory and extending asset buys by six months until March. [L8N13S1HC]

“I accept that our policy has not yet been successful: inflation in Europe has for a long time been at a very low level of almost zero,” Praet, the ECB’s chief economist, told Belgian weekly magazine Knack.

Praet said various factors, notably low oil prices and less buoyant emerging economies, meant it was taking longer to reach the goal of inflation of close to but below 2 percent.

“We need to be attentive that this shifting horizon does not damage the credibility of the ECB,” he added.

Inflation has missed the ECB’s target of close to but below 2 percent for almost 3 years and it will still take years at best to drive up price growth towards the target, the bank forecast earlier.

Praet said that, despite this shifting horizon, the ECB did not have an alternative to its policy of low interest rates and 1.5 trillion euro asset buying scheme.

“There is no plan B, there is just one plan. The ECB is ready to take all measures necessary to bring inflation up to 2 percent. If you print enough money, you get inflation. Always. If, as is happening now, the prices of oil and commodities are tumbling, then it’s more difficult to drive up inflation,” he said.

“If a whole series of such things happens, then you can only shift the date by which you will achieve higher inflation.”

Praet also said in the interview that the ECB would continue its accommodative stance for as long as required until inflation moved in a sustainable way towards 2 percent.

“If we look at the economic situation, I think that the current policy will certainly be in place until March 2017 and longer if necessary,” he said.

About Kristjan

Defitsiidi terrorismi vastase pataljoni eriüksuslane (finantsignorantsuse vastu võitlemise osakond). Treening: MMT, postkeinsism, Tartu Ülikool Majandusteadus
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