It's time for the ECB to put QE on hold

WITH economic sentiment in the eurozone worsening rapidly, the European Central Bank (ECB) is widely expected to announce a robust package of additional stimulus measures at its next meeting on Sept 12.

But although the ECB's monetary policy has in general been insufficiently expansionary (reflected by persistently below-target eurozone inflation), now is not the right time for fully-fledged monetary-policy easing, including a return to quantitative easing (QE).

For starters, the eurozone economy is in much better shape than it was in March 2015, when the ECB introduced QE. Compared to then, the eurozone composite purchasing managers' index, a key indicator of business activity, is a little higher. Headline and core inflation are also higher, as are households' inflation expectations and the European Commission's economic sentiment indicator. Furthermore, short- and long-term interest rates, and banks' lending rates, are much lower, and credit growth is stronger. Given such data, it is difficult to make a persuasive case for QE.