Last quote by Peter Praet
Peter Praet quotes
The Eurosystem buys securities from a range of counterparties, including many that are located outside of the euro area and which largely participate in Target 2 via the Bundesbank, leading to additional inflows of central bank money into Germany as a direct result of the asset purchase programme.
Plan B. 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.
At some point you have a problem of credibility and… it means that you have a risk always that markets and households at some point will revise down their long term expectations.
The persistence of negative rates over time – two, three years – is something that becomes quite worrisome if you think about the implications for business models.
Sure.. Sure.. I think it's very dangerous also to give too many illusions to the public that what creates jobs, what creates wealth is monetary policy. It's always dangerous also to give too much, you know, credit.. which [creates] an illusion that monetary policy can solve all the problems.
We are looking, as I said, at some of the aspects which is basically putting financial conditions, favorable financial conditions, so that when firms decide to invest they will not have a constraint on the credit side.
No, I wouldn't say that….
It's a complicated question. But the first thing is to identify what is the cause of this subdued price pressure. What we see today, in the more recent period, is that the slack factor dominates. The weaker oil price in the low inflationary picture that we have.
I think now, the biggest problem as I see it is that a number of households are revising downwards their long term expectations about the future. What will our future be? And that leads to a sort of negative expectation trap.. which is a delicate.
Second, I think we cannot say the ECB didn't intervene. We know from market behavior that we had episodes of fear, real fear of deflationary pressures. That means that households and market participants didn't know how the ECB would react to some crisis factor.
There is weak demand because a lot of households, a lot of companies, a lot of states have high debt, so they reduce their spending compared to the capacity of the production of the economy. So, you get pressure on the pricing system which are more on the downside, which is a little bit the new environment that we have.
Interest rates are going to remain low. Not only today. Interest rates in the US, the long term interest rates have increased in the US because the situation is improving in the US. But we have been able to – contrary to the past – to decouple our interest rates from the US, that means policy remains accommodative.
Well, its very difficult because central banks cannot really answer to these questions by just printing money or providing liquidity. It is part of the solution I think, but it's basically recreating positive expectations about the future – which is job opportunity, which is unfortunately structural reform, its education – you know it's all these things, which are much more important of course.
The situation in the US and here has been quite different as you know. In the euro area we went into a crisis with very weak crisis management institutions, crisis management for banks for example. In the US you didn't have that. And also much more flexible labour markets in general. So we were in a very difficult situation.
Now we are starting to get out of this, but a lot of damage has been done. There is a lot of slack in the economy, so there is some price pressure. So it's true that we are not in deflation, but we are in a sort of a situation of sort of slow growth, low inflation and we are not satisfied about that and we said very clearly that we wanted to address that and we are responding to that in our mandate.
Well, I think the governing council meeting will discuss, of course, but there are a number of things you have to see – what is the main impairment in the transmission of your monetary policy. And so, we have margin on rates as you know.
More specifically, of course one of the issues that we have identified very much is the transmission via lending to smaller firms in general and so it is indeed true that we are looking at a number of possibilities there. We will see how the discussions go, but we have identified a number of impairments in the transmission of monetary policy and we are working on these issues.
And it is true, the biggest challenge we have today is to recreate in the public – but that's a more political question – to recreate within the public, positive expectations about the future and that's not what you see today in many countries. It's more disappointment and negative expectations about the future.
If supply is bigger than demand so you get some pressure on prices. It's really a sort of barometer that expresses some imbalances on the economy, that's why you should be worried. In a symmetric way, if demand is bigger than supply you get inflation and on the other hand you get some deflationary pressures.
The context we have now is a more structural sort of pressure on prices which is a result of slack in the economy and so we have been taking accommodative monetary policy. We have done that for example by communicating our assessment about the situation, by saying we will have to face a relatively long period of subdued price pressure, related to weak economy, moderate growth and fragile growth.