ECB 'still has ammunition' to boost eurozone: board member

DEC 10, 201511:33 PM

[FRANKFURT] Financial markets may have been disappointed by the European Central Bank's latest round of policy moves, but it still has other measures up its sleeve to boost recovery in the euro area, executive board member Yves Mersch said.

"As the Gauls say, if the sky doesn't fall in, we still have other ammunition we can use," Mersch told journalists at a dinner late on Wednesday.

He declined to outline what other bullets the ECB still had in the chamber, to avoid fuelling "unwarranted expectations" as had been the case ahead of the central bank's regular policy meeting last week.

But Mersch insisted any future steps would be "appropriate." In the run-up to the last meeting this year of the ECB's decision-making governing council, financial markets had bet on much more decisive action to try and kickstart doggedly low inflation in the 19 countries that share the euro.

In the end, a 0.10-percentage point reduction in one of the ECB's key interest rates and the six-month extension of its asset purchase programme fell short of those heady expectations.

And the ECB came under fire for fuelling hopes it subsequently refused to fulfil.

Already on Wednesday, the head of the Austrian central bank Ewald Nowotny had dismissed the markets' expectations as "absurd" and said analysts had been seriously mistaken.

Mersch conceded that the moves had "probably disappointed the markets, otherwise we wouldn't be seeing this volatility." "Communication is a difficult job, but people are always wiser with hindsight," Mersch said.

He defended the ECB's decision to undertake further monetary easing amid apparent divisions on the governing council about the need for action.

The German central bank, or Bundesbank, in particular was opposed to additional measures.

"We tried to increase the eurozone's ability to withstand new shocks," such as the slowdown in emerging economies, Mersch argued.

Such shocks partially explained the reason why the ECB had been compelled to set back the target date for bringing eurozone inflation back up to its target of close to but just under 2.0 per cent, he argued.

AFP