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ECB's Hansson sees no need to ease policy in December

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A member of the European Central Bank's governing body said he saw no need to ease policy further in December, contradicting an unexpectedly dovish message last week from ECB President Mario Draghi.

[TALLINN] A member of the European Central Bank's governing body said he saw no need to ease policy further in December, contradicting an unexpectedly dovish message last week from ECB President Mario Draghi.

The euro zone economy appears resilient and long-term inflation expectations look relatively well-anchored, Ardo Hansson, a member of the ECB Governing Council and head of Estonia's central bank, said on Wednesday. A rate cut would depart from the bank's forward guidance and threaten its credibility, he said. "I don't see any convincing reason to consider further policy action in December knowing what we know today," Hansson said at a news conference. "If something very fundamental changes, we could perhaps re-evaluate, but now I don't see any need to take such a step." The ECB last week raised the prospect of policy easing in December and said a deposit rate cut may be on the agenda, even though the bank had earlier said rates had hit the "lower bound"and there would be no further cuts.

Indeed, speaking in Mexico City overnight, ECB executive board member Benoit Coeure said the ECB pays closer attention to real rates, which have been rising as inflation expectations fall, putting the deposit rate back in play. "If we see a risk that inflation would go back to 2 per cent ... in a much more sluggish way than would be previously expected... that may also mean an adjustment of the deposit facility rate," Coeure said.

But Hansson said he was more upbeat on the inflation outlook. "When you ask professional forecasters about their outlook for inflation in the long term, they see it very well-anchored,"Hansson said. "We sometimes highlight the negative trends and we know that the external environment has become more fragile," Hansson said."But we also see quite a lot of resilience in the domestic euro area economy; we see growth continuing near projected levels, and the bank lending channel seems to be working better and better all the time," Hansson said.

REUTERS