Euro area continues to require 'significant' support, ECB's Praet says
By Alexander Bueso
Date: Tuesday 13 Nov 2018
(Sharecast News) - The Eurozone economy continues to require "significant" stimulus support, the European Central Bank's chief economist said on Tuesday.
In remarks prepared for a speech in London, the ECB's Peter Praet said that "significant monetary policy stimulus is still needed to support the further build-up of inflationary pressures and headline inflation developments over the medium term."
Thus, the key challenge now facing policy-makers in the euro area as they "normalised" monetary policy was how to preserve monetary accomodation even as the central bank switched back from net asset purchases to forward guidance on rates as its main instrument "to steer our monetary policy stance".
Praet attributed the economic slowdown chiefly to global factors, together with "policy uncertainty" and tighter financial conditions around the world.
While a certain amount of slowing was expected versus 2017, it had been made worse by short-term country-specific or sector-specific factors within the single currency area, he said.
Nonetheless, domestic demand in the Eurozone remained "resilient" he said.
"The underlying strength of the euro area economy continues to support our confidence that the sustained convergence of inflation to our aim will proceed," Praet added.
"While measures of underlying inflation remain generally muted, they have been increasing from earlier lows, amid high levels of capacity utilisation and tightening labour markets. [...] Overall, though, significant monetary policy stimulus is still needed to support the build-up of domestic price pressures and headline inflation developments over the medium term."
Reacting to his remarks, as of 1259 GMT euro/dollar was edging higher by 0.23% to 1.12593 while the yield on the benchmark 10-year German government note was flat at 0.40%.
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