ECB Member Praet Sees Fragile Recovery But No Deflation Risk

There is no risk of deflation visible in the euro zone economy but its recovery is fragile with inflation low and credit subdued, ECB Executive Board member Peter Praet said on Tuesday.

The ECB cut interest rates to a record low earlier this month and said it could take them lower still to prevent the euro zone’s recovery from stalling after inflation tumbled to 0.7 percent – well below its target of just under 2 percent.

Praet, who last week raised the prospect of the ECB starting to buy assets to bring inflation closer to the target, said inflation in the euro zone is low but inflation expectations solidly anchored.

A cyclical upswing in the euro area “is confirmed”, he added.

“Things are improving, but it is still a fragile environment,” Praet, who is in charge of the ECB’s economics portfolio, said in a presentation at the Euro Finance Week conference in Frankfurt.

Asset purchases – or quantitative easing (QE) – is a policy that has already been pursued by the U.S. Federal Reserve, the Bank of England and the Bank of Japan but such measures are extremely divisive among the 23 members of the ECB’s Governing Council.

Last week, Praet also suggested the ECB could cut deposit rates into negative territory, essentially charging banks to place their money with it. Markets do not expect such a scenario to unfold, however.

via Reuters

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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