Don´t expect too much from December meeting, ECB´s Mersch says

A top European Central Bank official delivered a shot across the bow of markets on Thursday, telling an audience not to expect too much to in terms of extra stimulus to come out from the monetary authority´s next meeting.

Speaking in Frankfurt, ECB Governing Council member Yves Mersch explained that the institution´s purchase programme was not intended to be permanent, should be withdrwan as soon as possible and ran the risk of creating the wrong incentives for governments.

He also reiterated a call for other policy measures to be implemented, in reference to structural reforms and fiscal spending, in order to help maintain the economic recovery and to aid in the normalisation of interest rates.

“The size of the purchase program means that will take some time, but a permanent commitment to our bond-buying, for example, would set the wrong incentives for government financing [...] a development that would ultimately run up against the ban on monetary financing and so be incompatible with our mandate,” Mersch said.

Significantly, he pointed out that: “It could be that we expect an inflation rate at the 2019 horizon that is very near to our price-stability goal of almost 2.0%.”

Markets should not have “excessive expectations” for the policy decision.

The ECB´s governing council was set to meet on 8 December and decide whether or not to extend its asset purchase programme past its then scheduled end date of March 2017.

In parallel, the central bank was also due to publish updated economic forecasts running out, for the first time, to 2019.

On the matter of further policy measures, Mersch said “that includes stronger fiscal policy”.

“Only then can our monetary policy normalize. Moreover, above all we need reforms that, for example, allow more flexibility in labor and product markets, and which boost productivity.”