Executive Board member Benoit Coeure said the European Central Bank will act if needed to support the economy and could even be facing such a decision within months.
In a Financial Times interview, Coeure said most of the economic concerns relate to manufacturing, and may be temporary, but that signals coming from financial markets are “quite alarming.”
The comments from the ECB’s markets chief add to the dovish tone coming from Frankfurt after President Mario Draghi said officials are determined to act, and even raised the prospect of interest-rate cuts or QE.
“So far we’re talking about contingency planning,” he said. “But at some point during our next few meetings, we might very well be facing a situation where risks have materialised.”
The remarks come ahead of the ECB’s annual symposium in Sintra, Portugal. Policy loosening is also on the horizon for Federal Reserve, which meets this week. Investors are primed for it to indicate a willingness to lower the US benchmark rate in coming months.
“The constellation of prices in the bond market paints a picture of the global economy which is very bleak,” Coeure told the FT. “Central banks should never ignore market signals. They shouldn’t follow them blindly either.”
German 10-year bond yields dropped below zero in early May and are now at -0.254 percent, close to a record low. A markets measure of euro-area inflation expectations has also plunged.
Coeure said the all options for loosening “come with costs and benefits,”
but “none of this would deter us from acting. If the decision is rate cuts, then the ECB would have to consider “the impact of negative rates on financial intermediation, especially for banks. We would have to consider whether a tiering system is needed.”