ECB urged to buy eurozone assets

Reuters

Brussels/Frankfurt

A leading international think-tank urged the European Central Bank yesterday to loosen the purse strings further and buy eurozone government and corporate bonds to accelerate a weak recovery.

The Paris-based OECD called on the ECB to emulate US-style quantitative easing (QE) to help the single currency area avoid a Japanese-style deflationary spiral.

The ECB’s vice-president, Vitor Constancio, said the bank had discussed the possibility of QE but not in detail, and no technical planning work had taken place.

“All those instruments are on the table ... but no decisions, we did what we did and that’s it,” he said, referring to a November 7 decision to cut the bank’s key interest rate to a record low of 0.25%.

One of the bank’ hawks, Joerg Asmussen, said separately that more policy action was possible if inflation continues to be well below the ECB’s target, but only if deemed necessary.

“Risks of deflation may be slowly increasing,” OECD chief economist Pier Carlo Padoan told Reuters. “The ECB must be very careful and be prepared to use even non-conventional measures to beat any risk of deflation becoming permanent.”

Inflation in the 17-nation eurozone fell to its lowest in nearly four years at just 0.7% in October, prompting the latest rate cut. The eurozone economy is struggling to recover from its longest ever recession which ended in mid-year.

In an Austrian radio interview, ECB executive board member Asmussen, a German, said the bank could move again if necessary to keep inflation in the euro zone in line with its target of below but close to 2%.

“If the situation in inflation requires it, we can act again and one of the possible measures would be to use the so-called negative deposit rate,” he told public broadcaster ORF.