ECB officials pave way for gradual policy tightening

Six European Central Bank policymakers prepared the ground on Monday for a gradual roll-back of the ECB’s aggressive monetary stimulus, in light of stronger economic growth in the euro zone.

After 2-1/2 years of unprecedented money printing, the ECB is preparing to dial back its 2.3 trillion euros bond-buying programme, which has helped boost growth in the euro zone but is also blamed for creating real estate and financial bubbles - writes

ECB board directors Sabine Lautenschlaeger, Yves Mersch and Benoit Coeure, and the central bank governors of the Netherlands, Austria and Estonia all discussed the prospect on Monday of a gradual reduction in ECB support.

“The economy in the euro area is doing better and the conditions are in place for inflation to pick up and move steadily towards our goal,” Lautenschlaeger said in a written contribution to the Eurofi financial forum, due to take place in Tallinn on Sept. 13-15.

“We have to be prepared to take tough decisions in good time. We also have to adapt our communications accordingly,” said Lautenschlaeger, considered one of the top policy hawks on the rate setting Governing Council.

Euro zone price growth has stabilised just above 1 percent, stemming fears of deflation, or a sustained drop in prices. Yet it is still far from the ECB’s target of almost 2 percent.

Sources have told Reuters ECB rate-setters agreed last week to start reducing the bond purchases, with a decision likely at their next policy meeting on Oct. 26.

Coeure, however, cautioned that ECB’s policy was set to remain easy for a long time and played down a drag on inflation from a recent rally in the euro.

“Compared with past demand shocks, policy will remain more accommodative for longer, thereby likely muting further the pass-through of any growth-driven exchange rate appreciation,” Coeure told a conference in Frankfurt.

“And with the current recovery in the euro area being largely driven by domestic demand, euro strength may also have less of an impact on growth than, for example, after the Great Financial Crisis,” he added.

Rate setters have refrained from changing policy thus far largely out of fear that this would push up the euro and borrowing costs in the bloc, undoing some of the ECB’s stimulus efforts.

Seeking to downplay these fears, Mersch, Estonian governor Ardo Hansson and his Austrian colleague Ewald Nowotny said any reduction would be gradual.

“Too much emphasis has been put on the fears of policy normalisation,” Hansson said in his message to Eurofi.

“The process of normalisation of policy stance is very gradual and in fact, it has been already started.”

Dutch central bank governor Klaas Knot emphasised in his own contribution the risk that easy cash would fuel bubbles and reckless behaviour on financial markets.

The ECB targets inflation at almost 2 percent over the ‘medium term’, an undefined concept that is influenced by the size of any inflation shock. 

Read more news of Tallinn here.
Tallinn ECB GoverningCouncil
If you notice an error, highlight the text you want and press Ctrl + Enter to report it to the editor
I recommend
No recommendations yet


Post your comment to communicate and discuss this article.

Chairman of the Estonian Chamber of Commerce and Industry and one of the owners of construction group Nordecon, Toomas Luman, finds that a prime ministerial candidate should first and foremost be able to answer the question of what will become of the demographic crisis in Estonia. The businessman sees controlled introduction of foreign labor as the solution. A digital construction cluster was created in Estonia a few years back to bring innovation to the s...
Last year saw 27,125 registered offenses, up 0.5 percent from the year before. Violent crime was up by 12 percent to 8,249 offenses. PHOTO: Dominic Lipinski / PA Wire / Press Association Images / Scanpix Growth was biggest for domestic violence – the police launched criminal proceedings in 3,607 cases that constitutes an increase of more than one-third – annual growth of 37 percent from 2,632 cases in 2017. At the same time, reports of domestic violence we...
TALLINN - Ahead of the withdrawal of the United Kingdom from the European Union, tens of thousands of British citizens have chosen the citizenship of some other country, but only one Brit has recently chosen an Estonian citizenship. Spokespeople for the Ministry of the Interior told BNS that only one British citizen submitted an application for Estonian citizenship last year and the applicant was also granted the citizenship. Before that, no Brits had soug...
TALLINN - Experts from Finland, Denmark, Norway and the Netherlands highlighted the importance of decentralization and granting local governments greater decision-making powers at a conference titled "Strong local government -- strong state?" in Tallinn on Wednesday.  All Nordic countries have chosen a model granting local governments significant decision-making powers, thus the central government does not prescribe how local governments are to fulfill the...
The language learning application Drops by game developer Planb Labs, established in Estonia by Hungarian founders, was named Google Play's best app of 2018. With the number of downloads surpassing 10 million, Drops was named Google's app of the year as the revenue of Planb Labs, a company registered in Estonia, increased fivefold, CNBC said. The developer's revenue grew from €335,000 in 2017 to €1.7 million in 2018. The company's shareholders include Hung...
TALLINN - The Estonian Health Board has banned the distribution of chlorine dioxide, also marketed as the Miracle Mineral Supplement (MMS), the A-component of an unused product, meaning the sodium chlorite solution, must be taken to a hazardous waste collection facility. Ester Opik, head of the Health Board's North regional department, said that the banning of the distribution of the product was caused by the fact that MMS, distributed as a cosmetics produ...
Nature cannot abide a vacancy, as the saying goes. If just one year ago, Estonia was battling the sale of MMS and the practice of giving it to children, a new “miracle cure” called Advanced TRS has appeared on the market now. Even though the make-up of the substance is different, the promise to cure autism and cleanse the body of heavy metals, which kind of extreme detox is accompanied by severe side-effects, sounds all too familiar. TRS is recommended to...
Allied NATO battalions will soon mark two years serving in the Baltics. They have worked better than expected but would need prepositioned heavy weaponry and a functional contingency plan in case of a crisis, a report by the International Center for Defense and Security (ICDS) finds. “We do not know how Russia would have acted had we not welcomed allies in Estonia, Latvia, Lithuania and Poland in 2017. I’m afraid they would have tested our resolve,” one of...
The time of filing income tax returns is nearly upon us. The new income tax system, in effect since last year, will obligate many women who went on maternity leave toward the end of the year to make additional income tax payments, while those who give birth in the middle or at the beginning of the year have no such obligation. What this means is that some women will owe the state simply for giving birth “at the wrong time”. Laura Roop, who went on maternit...