Economy

Lane says ECB has scope for interest rate cut

ECB chief economist also says bank could resume bond purchases

ECB chief economist Philip Lane says there is scope for an interest rate cut.

Mon Jul 1 2019 - 15:43

The European Central Bank’s new chief economist used his first speech in the role to claim that past monetary stimulus has been effective and that more is available if needed.

Philip Lane, who joined the executive board in June, echoed president Mario Draghi's recent remarks that there is room to cut interest rates from record lows or to resume bond purchases to boost inflation amid the current economic slowdown.

The euro zone is struggling under a manufacturing downturn, driven largely by global trade tensions. A gauge of factory activity published on Monday showed factories still stuck in a slump.

Mr Lane also said the ECB’s long-term bank loans and a communication strategy provide complementary support. “The effectiveness of the policy toolkit means that we can add further monetary accommodation if it is required to deliver our objective,” he said at a conference in Helsinki.

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“It is essential that a central bank shows consistency in its monetary policy decisions by proactively responding to shocks that might delay convergence to the target or move inflation dynamics in an adverse direction.”

Investors and economists predict that the ECB will cut interest rates as soon as this summer. The deposit rate is already at a record low minus 0.4 per cent and the central bank only capped its €2.6 trillion quantitative-easing program at the end of last year.

Mr Lane said the ECB’s latest adjustment to its communication on interest rates – a pledge to keep them on hold through at least the first half of 2020 – was not “intended to ratify market views.”

Rather, it offers an idea of the most likely path foreseen by the governing council given the current state of the economy. – Bloomberg

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