The European Central Bank (ECB) can’t wait too long to signal the winding down of its stimulus measures, Executive Board member Benoit Coeure warned on Thursday, citing the risk of jolting the markets.
“Too much gradualism in monetary policy bears the risk of larger market adjustments when the decision is eventually taken,” Coeure said in an interview with Reuters published on Thursday. “It’s the risk that our communication deviates from economic reality, which could cause a more forceful market adjustment down the road. I don’t see much merit in this.”
Coeure’s comments suggest that the ECB’s leadership might have to resolve some differences by the Governing Council’s June 8 policy decision. Chief economist Peter Praet said on Monday that the central bank cannot change its stance abruptly as the real economy still has to catch up with the buoyant sentiment in surveys, and his view has been backed by Vice President Vitor Constancio.
Coeure said the Governing Council’s communication has to reflect the evolving reality. Even so, he wouldn’t predict whether policy makers are ready to change their forward guidance that interest rates could still fall further.
While the Governing Council hasn’t yet formally discussed whether to change its policy stance, officials have been airing their views publicly on their 2.3 trillion-euro ($2.6 trillion) bond-buying program and negative interest rates.
Coeure also said it’s still possible that the ECB could raise the deposit rate, currently minus 0.4 percent, before quantitative easing ends. That would mark a change in the intended sequencing of raising rates only “well past” the end of QE. Praet in particular has defended the current guidance as having a strong logic.
“If you ask me in an abstract way, and that’s only my personal view, that could be the case if we had strong evidence that the negative deposit facility rate would impose a cost on the banking industry that would be such that this could become a hindrance to our monetary policy transmission, to the bank lending transmission channel,” Coeure said. “Again, I don’t think this is the case today.”