ECB’s Chief Economist Warns on Deflationary Pressures

he European Central Bank’s chief economist said on Friday the euro zone faces deflationary pressures, and the bank’s president stressed that interest rates must remain low “because the economy is weak”.

With euro zone inflation running at 0.7 percent, well below its target of just under 2 percent, a raft of ECB speakers this week have said it is open to taking fresh measures to support the economy.

Vice-President Vitor Constancio said on Tuesday “everything is possible” and both he and economics chief Peter Praet have said asset buying – or quantitative easing (QE) – is an option after years in which the bank’s policymakers have ruled it out.

But the more conservative minority at the bank, who voted against this month’s surprise cut in interest rates and are led by its German members, still seem dead set against any such move.

President Mario Draghi has taken a measured line, on Thursday pouring cold water on the idea the bank was actively considering moving deposit rates into negative territory and on Friday stressing the need to keep interest rates low.

“I understand the concerns about a prolonged period of low returns on savings. But it is important to understand that interest rates are low because the economy is weak,” Draghi told the European Banking Congress in Frankfurt.

via <a href=”http://www.reuters.com/article/2013/11/22/us-ecb-idUSBRE9AL0DQ20131122?feedType=RSS&feedName=businessNews”> Reuters</a>

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza