ECB Coene urges to start QE, Constancio sees negative inflation rate

Source: Dukascopy Bank SA
"We now expect a negative inflation rate in the coming months and that is something that every central bank has to look at very closely"
- Vitor Constancio, ECB Vice President


According to the Governor of Belgium's central bank, Luc Coene, the European Central Bank should begin purchasing government bonds to boost investor confidence and combat falling inflation rates in the Euro region. Coene said that if consumer prices slid to the deflationary spiral, the impact on households' and businesses' behaviour will be extremely negative.

Meanwhile, the ECB Vice President Vitor Constancio expects the Euro zone inflation rate to fall into the negative territory in the coming months, stressing that the central bank's current inflation expectation of 0.7% for 2015 is outdated, as oil prices plunged as much as 15% since the December inflation forecast. Annual inflation in the 18-nation region eased to 0.3% in November as energy prices dropped, putting it well below the ECB's goal for inflation close to but just below 2%. While falling oil prices should support growth and drive up inflation in the longer term, it creates a challenging situation in the short term. However, Constancio highlighted that several month of negative inflation would not mean the Euro zone slid into deflation, as it might be just a temporary phenomenon. He added that the International Monetary Fund, the European Commission and OECD forecast that the Euro region's economic weakness would persist until 2018, meaning that there would be downward pressure on inflation until then.

© Dukascopy Bank SA

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