European Central Bank Governing Council member Ignazio Visco said the central bank could step away from its commitment to keep interest rates low for a long time after quantitative easing stops.
While the ECB’s current guidance foresees that borrowing costs will stay at current or lower levels “for an extended period” and won’t rise until “well past” the end of bond-buying, the Bank of Italy governor said this period “could” be shortened.
“I cannot say that QE is somehow coming to an end, and at the same time that interest rates are being maintained at a low level,” Visco said in a Bloomberg Television interview in Baden-Baden, Germany, on Saturday. “It is a package, not single measures — one by one — that we’ll discuss.”
The implications of long phases of rates below zero have been a focal point of debate as the ECB prepares to map an exit from three years of monetary stimulus amid accelerating inflation and strengthening economic growth. Banks have complained that negative rates — in place since June 2014 — eat into their profitability, potentially hampering lending. The ECB has maintained that negative rates reinforce QE by pushing up prices and supporting the recovery.
As the economy picks up, calls on the ECB to change its guidance are getting louder. Some policy makers raised the issue at the March 9 Governing Council meeting, according to people familiar with the matter, and Austrian governor Ewald Nowotny has said that the exit path followed by the Federal Reserve — tapering purchases first, and raising rates only after a long period — may not transfer well to Europe. Executive Board member Peter Praet countered that the current sequence has a “strong logical basis.”
“The real non-conventional element of monetary policy is negative rates,” Visco said in a press conference on Saturday. “We will have to see when the expectations that those rates can be negative for a long time will be somehow interrupted.”
In the Bloomberg interview, Visco stressed that QE, negative rates and forward guidance are all parts of a single policy package, adding that the size of the balance sheet will be a key theme of future discussion.