The risks of a de-anchoring of inflation expectations to below 1 percent or close to zero in the euro area have increased and hence, the central bank acted forcefully, ECB Executive Board member Peter Praet said in an interview to a newspaper, published Monday.
"We have seen in some countries some signs of de-anchoring in wage formation, Praet said in an interview with the Portuguese daily Publico.
"But, this being said, we haven't concluded that inflation expectations are de-anchored."
Defending the ECB against criticism that it is acting too late, Praet said, "I think that what the ECB has demonstrated with its action is that we are absolutely determined to avoid deflation."
"All the actions we took to avoid a banking crisis and in the end the break-up of the euro, were instrumental in avoiding deflation," the policymaker added.
Praet maintained that the ECB have the means to bring inflation to its target of 'below, but close to 2 percent'.
In response to a question on the ECB's ability to face another shock, Praet said, "I always answer: trust us, we always find the means within the scope of our mandate."
"We have shown in the past that we can be very creative within our mandate," he said.
The rate-setter also pointed out that the ECB's rate-setting body, the Governing Council, never had "a paralysis problem or a chaotic decision-making process". ECB policymakers have not felt hindered in their action by a lack of instruments, he added.
"We always had quite strong agreement on decisions actually," Praet said. "Not always unanimity, but very strong support."
While stressing that interest rates remained in the ECB tool box to fight deflation, Praet said they will remain at present or lower levels. Negative rates at some point have also side effects that start to become more important, namely on the profitability of banks, he added.
Regarding Portugal, which could be facing a credit rating downgrade to junk, Praet said the ECB will buy only investment grade assets.
"We can have a rating waiver, but this is subject to a programme," Praet said.
"So there is no ambiguity there."
by RTT Staff Writer
For comments and feedback: editorial@rttnews.com
Business News
