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9/3/2019, 9:47 PM (Source: TeleTrader)
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ECB's Villeroy: More QE would impact long rates

The governor of France's central bank warned inflation is still "too low" despite a pickup in wage growth and failed to estimate whether the gap is only temporary. Rate-setters "must be attentive to but not dependent on" market expectations, Francois Villeroy de Galhau said in an interview with L'Agefi on Tuesday and pointed to other price measures, with higher prints. The European Central Bank would prevent a tightening in financial conditions by cutting the deposit rate for the Eurozone, now at a negative 0.4%, he hinted and highlighted discussions about so-called tiering, which would ease the impact on citizens' savings. The policymaker remained reluctant about another round of bond buying.

The net asset purchases or quantitative easing "remain an essential instrument" so the balance sheet, now at almost €2.6 trillion, will be maintained at a high level "for at least several years," the chief of Banque de France said. However, he said longer maturities, which QE targets, could suffer an "excessive" fall in term premiums or spreads if the program is reintroduced after a halt at the end of 2018.

Villeroy blamed "the undeniable economic downturn" on "uncertainty and geopolitical tensions," led by the trade policy of the United States. Ahead of the ECB's meeting next week, Bank of Estonia's governor Madis Muller said more QE would be "disproportionate."

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