Risks of inflation expectations becoming de-anchored have increased, ECB´s Praet says

Policymakers at the European Central Bank still have room to ease monetary policy further if deemed necessary, its chief economist said.

In an interview with Portuguese daily Publico, Peter Praet explained that the ECB had acted "very forcefully" on policy when it realised that the unravelling of the commodity price shock was beginning to contaminate the domestic components of inflation, including inflation expectations.

Making matters worse, the euro area had not seen high inflationary pressures even during the boom years, he added.

Against that backdrop, Praet said interest rates continued to form a part of the ECB´s tool-box of possible policy options.

Praet also said the risk that inflation expectations might become de-anchored had increased.

"We haven’t succeeded yet in getting close to the 2% [inflation target], but on the other hand we really have avoided deflationary conditions. So I would say, given the nature and size of the shocks, it wasn’t easy to achieve that result. Obviously, we are not satisfied with it and that is why we are persevering. And we have got the means to do it."

The ECB´s chief economist also reiterated a call for structural and fiscal policies to be implemented alongside the current monetary stimulus.

However, it was not the time to begin speculating about further easing, he added.

Inflation expectations have not become de-anchored but risks have risen

"Interest rates are still in the tool box. There are different tools, including purchase of assets, but you don't open the door when you haven't even implemented one part of the programme," he told the newspaper.

"The important message is that we have not felt hindered in our action by a lack of instruments."

"What we say is that the risks of de-anchoring have increased, obviously. And that is why we acted forcefully. We have seen in some countries some signs of de-anchoring in wage formation. But, this being said, we haven't concluded that inflation expectations are de-anchored."

On the subject of so-called 'helicopter money', Praet said if that possibility existed at all then it was at the very bottom of the tool-box.