“Inflation remains well below target and there has been only partial progress in tackling the negative impact of the pandemic on projected inflation dynamics,” Philip Lane said in a blog published Friday. “The recent appreciation of the euro exchange rate is dampening the outlook for inflation.”
Her remarks echoed the more optimistic tone struck a day earlier by ECB President Christine Lagarde, who some analysts said seemed overly optimistic.
The euro has risen 10 percent against the US dollar since March. While this partly reflects a more positive outlook for the euro area, economists say it could also lower inflation by lowering import prices and reducing the competitiveness of the Union’s exports.
Data released last week showed the eurozone entered deflation for the first time in four years; Headline consumer price inflation was minus 0.2% in August, compared to an increase of 0.4% the month before.
Ms Lagarde on Thursday revised up the ECB’s gross domestic product and inflation forecast and said the central bank had not discussed expanding its bond buying program, but was monitoring the ‘euro. This helped push the euro above $ 1.19 against the dollar, before it retreated.
Mr Lane’s blog has been interpreted by analysts as an attempt to adjust the serene impression given by Ms Lagarde’s comments on Thursday.
Mr. Lane “seems much more alarmist than [Ms] Lagarde did it yesterday, ”said Carsten Brzeski, economist at ING.
He compared Mr Lane’s latest blog post with an article he published in March in an attempt to clarify Ms Lagarde’s comment that it was not the role of the ECB to ‘close the gap’ between Italian and German bond yields, which triggered a liquidation in the bond markets. .
“This is indeed yet another attempt to correct the message of a board meeting already less than 24 hours later,” Brzeski said.
Later on Friday, Ms Lagarde echoed Mr Lane’s message, saying: “Our accommodative monetary policy needs the support of fiscal policy, and none of us can afford to be satisfied right now. ”
Other senior ECB politicians who spoke publicly on Friday also highlighted the impact of the euro’s rise. François Villeroy de Galhau, Governor of the Banque de France and member of the board of the ECB, said in a speech: “We are not targeting exchange rates. But obviously the exchange rate matters for inflation and monetary policy. ”
However, Vitas Vasiliauskas, head of the Lithuanian central bank, downplayed the importance of the euro’s rise, saying: “We should watch it, but historically it’s not that exceptional.
Efforts by policymakers to highlight the consequences of the rise of the euro have suggested growing discord within the ECB’s governing council over whether more monetary stimulus would be needed, Brzeski said. : “It looks like a split in the board of governors. ”
Lena Komileva, Chief Economist at G + Economics, said: “The many voices from the Governing Council are now sending the signal that policymakers are still looking for common ground on how to respond to the rate. exchange rate. ”
Mr Lane said the ECB would decide later this year whether more stimulus was needed once there was more clarity on the strength of the economic recovery, the direction of the euro, spending plans governments and the fate of the Brexit negotiations.
“Over the next few months, a richer body of information will become available that will help inform the calibration of monetary policy,” wrote the ECB’s chief economist.
Frederik Ducrozet, strategist at Pictet Wealth Management, said: “The problem with [Mr] Lane’s clarification is that she suggests he may not have been successful in imposing his views on the board. . . challenge the idea that monetary stance will be adjusted again in December. ”
Most economists expect the ECB to expand its emergency bond purchase program by € 1.35 billion as early as December if inflation shows little sign of rebounding. Mr Ducrozet said it was “still my baseline, but the data to come will be more important than before”.