By Francesco Canepa and Balazs Koranyi
FRANKFURT (Reuters) -The European Central Bank has learned its lesson about aggressive money printing and will pay more attention to the side effects of easy money in the future, the ECB’s Vice-President Luis de Guindos told Reuters.
Having vanquished high inflation, the ECB is reviewing its long-term strategy as well as its policy toolkit, including the massive bond purchases and negative interest rates it deployed over the last decade when price growth was too sluggish.
Its 5 trillion-euro ($5.8 trillion) wave of money printing, known in market parlance as quantitative easing (QE), has been criticised for creating bubbles in property and financial markets, and for setting up the ECB for large losses once interest rates rise.
De Guindos said “all the instruments” used in the past would remain in the ECB’s toolbox but he and his colleagues had become more aware of their drawbacks.
“We have learned much more about side effects, and we are going to pay more attention to financial stability considerations,” he told Reuters in an interview. “QE, for instance, was a new instrument.”
He said another learning point was that “sometimes it’s much easier to start using the instrument than to withdraw it”.
Borrowing costs for Italy shot up in the summer of 2022 when the ECB stopped its bond purchases and prepared to raise interest rates, forcing the central bank to come up with a new safety net for indebted countries.
ECB policymaker and Croatian central bank governor Boris Vujcic also said in a recent interview that “the bar for QE would be higher” in the future.
The ECB is due to present the conclusions of its strategy review, the first since 2021, in the early summer.
Some policymakers in the ECB’s hawkish camp were hoping for the new strategy statement to contain self-criticism, but sources told Reuters this was unlikely to feature.
A staff analysis presented to policymakers last month found that QE and other stimulus tools such as negative rates had been, on balance, beneficial. This research was expected to be published as working papers in the autumn.
De Guindos also said the new strategy statement would mainly reflect the changed economic situation from a world of low inflation and interest rates to one where prices grow faster and trade is disrupted.
“I would not expect big surprises,” he said of the statement currently being drafted. “It will be much more focused on how the framework for central banks and for the ECB has changed over the last five years.”
($1 = 0.8674 euros)
(Reporting By Francesco Canepa; Editing by Hugh Lawson)
Comments