Bundesbank backs ECB line on possible further measures

[FRANKFURT] Germany's Bundesbank on Monday echoed the European Central Bank's line on taking further stimulus measures to support the eurozone economy if needed, in a surprising show of support for ECB President Mario Draghi.

In its monthly report, the Bundesbank stuck closely to language used by Mr Draghi at his Dec 4 news conference - though the German central bank did not go so far as to openly support quantitative easing, or printing money to buy sovereign bonds.

The language is nonetheless significant, because the Bundesbank's hawkish chief, Jens Weidmann, has been reluctant toendorse quantitative easing, the main policy option under debate for possible deployment by the ECB early next year.

"The risks for the economic outlook in the euro area are on the downside," the Bundesbank wrote, repeating the ECB's line that its Governing Council is unanimous in its commitment to using further unconventional measures if needed.

"This would mean that at the beginning of the coming year, the scope, pace and composition of the measures would be changed," the Bundesbank said.

ECB policymakers are debating whether to take fresh action to combat the threat of deflation in the eurozone, where inflation is running at 0.3 per cent - far below the ECB's target of just under 2 per cent.

A Reuters poll of economists showed growing worries that plunging oil prices may send the eurozone into a deflationary spiral, which could push the ECB to buy sovereign debt early next year.

The Bundesbank also said it would have to cut its 2015 inflation forecast if recent declines in oil prices are sustained.

Just 10 days after releasing updated inflation and growth forecasts, the Bundesbank said the Brent crude prices had since fallen 11 per cent on average below the forecast assumptions.

"Such a reduction in the price of crude oil points towards a downward revision of the inflation forecast and an upward revision of the forecast for GDP growth," the German central bank said, presenting its monthly report.

"If the low crude oil prices continue, the projection for the HICP (inflation) rate for the coming year would have to be adjusted downwards by 0.4 per centage points," it said.

The latest Bundesbank projections point to inflation of 1.1 per cent in 2015.


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