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LONDON – One of the more hawkish members of the European Central Bank has sought to play down the division seen at the Frankfurt institution this week, saying he still supports an accommodative policy.
“We all agree that we want to be united in this phase of recovery, we all want in fact [inflation] to go to 2%, so my dissent should not be dramatized, “Belgian central bank governor and ECB member Pierre Wunsch told CNBC’s Joumanna Bercetche on Friday.
Wunsch confirmed that he voted against the central bank’s new guidance on interest rates, announced on Thursday. He said he was reluctant to commit to the potential five or six year horizon for accommodative policy to remain in place, in line with market expectations, given possible risks that could force the central bank to change. of cap.
Reports suggest that Bundesbank President Jens Weidmann also voted against the changes.
“The most important conclusion of the retreat in fact, and of our new strategy, is what I would call a ‘no regrets’ conclusion, as we all agree that what we did these years was necessary and proportionate, ”said Wunsch. noted.
“The question is whether this test of proportionality that we will have to do in the future – if we can stay proportional in what we do and make commitments over a long period of time, like five or six years into the future. “
“We might be facing issues of fiscal dominance, issues of financial dominance, and at the end of the day, I didn’t feel comfortable making a commitment for five or six years.”
Wunsch suggested that he was “perhaps taking forward guidance too seriously” and told CNBC that some of his colleagues at the ECB had suggested that the guidance could be changed again if certain changes in financial conditions were to occur. produce.
The ECB recently raised its inflation target to symmetrical 2% and changed its forecast to maintain that inflation is expected to stay well below target after a transient spike this year, as economies reopen and chains supply remain limited.
Policymakers also maintained their commitment to purchase € 1.85 trillion ($ 2.2 trillion) in bonds through March 2022 as part of the Emergency Pandemic Purchase Program, while that interest rates remained unchanged at historic lows on Thursday.
Inflation stood at 1.9% in June and the ECB expects consumer prices to rise further in the coming months, before falling again in 2022 and falling to 1.4 % in 2023.
Wunsch said the weak forecast points to a time horizon of five to six years before policy tightening is considered, but suggested the risks to this commitment are clear.
“If you look at what’s going on in the United States, we might have a pick-up in inflation that could come sooner and more sharply than expected, which in the end would be good for us because that’s what we want, ”he said. .
However, he argued that other issues arise from there, including how to deal with a potential overshooting of inflation targets. The ECB has said it will tolerate an unintentional overshoot as the reopening of economies puts upward pressure on prices.
“Another concern is what do you do if the inflation goes up to 2%, 2.1%, then comes back to 1.5%, 1.8% and you get stuck there?” he said.
“Do you want to go back for five to 10 years of QE (quantitative easing), negative rates, and that’s also where I guess I wouldn’t be very comfortable, again because it would have to be a proportionality assessment and I find it very difficult to do that assessment over such a potentially long period of time. “
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