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Two of the top contenders to become the next European Central Bank president said they don’t know if the institution will be able to raise interest rates this year.
Benoit Coeure and Francois Villeroy de Galhau both said in Bloomberg TV interviews in Davos that the ECB is still judging the extent of the euro area’s economic slowdown and any increase in official rates will depend on that prognosis. Their views are key because as well as being current policy makers, the men signaled that they’d be willing -- if asked -- to succeed Mario Draghi after he steps down in October.
They spoke at the World Economic Forum a day after the ECB said the risks to euro-area economic growth have “moved to the downside.” Despite that assessment, the central bank kept its monetary policy unchanged, including wording on how long interest rates will be on hold.
“We’re saying we’re not going to move before through the summer. We could change it, we could extend it,” Executive Board member Coeure said. “If at some point we see market expectations which don’t fit the way we see the economy, then we would have to react, and we would adjust our guidance. And we may have to do it at some point.”
Coeure, 49, said it’s too soon to say if rates could still rise in 2019 because officials are “still understanding the nature of the shock.” Villeroy de Galhau, governor of the French central bank, said the ECB’s own forecasts will “probably be reduced” when they are updated in March, and the chance of tighter money is contingent on how the outlook evolves.
“It’ll depend on the state of the economy,” he said. “We will remain accommodative because the euro-zone expansion still needs our support but we will be very pragmatic in the implementation.”
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Two of the top contenders to become the next European Central Bank president said they don’t know if the institution will be able to raise interest rates this year.
Benoit Coeure and Francois Villeroy de Galhau both said in Bloomberg TV interviews in Davos that the ECB is still judging the extent of the euro area’s economic slowdown and any increase in official rates will depend on that prognosis. Their views are key because as well as being current policy makers, the men signaled that they’d be willing -- if asked -- to succeed Mario Draghi after he steps down in October.
Play Video
[size=0.75]Economic Slowdown Has Surprised Us, Says ECB's Coeure
Coeure tells Bloomberg that it’s too early to judge whether the ECB will raise rates in 2019.
(Source: Bloomberg)
They spoke at the World Economic Forum a day after the ECB said the risks to euro-area economic growth have “moved to the downside.” Despite that assessment, the central bank kept its monetary policy unchanged, including wording on how long interest rates will be on hold.
“We’re saying we’re not going to move before through the summer. We could change it, we could extend it,” Executive Board member Coeure said. “If at some point we see market expectations which don’t fit the way we see the economy, then we would have to react, and we would adjust our guidance. And we may have to do it at some point.”
Coeure, 49, said it’s too soon to say if rates could still rise in 2019 because officials are “still understanding the nature of the shock.” Villeroy de Galhau, governor of the French central bank, said the ECB’s own forecasts will “probably be reduced” when they are updated in March, and the chance of tighter money is contingent on how the outlook evolves.
“It’ll depend on the state of the economy,” he said. “We will remain accommodative because the euro-zone expansion still needs our support but we will be very pragmatic in the implementation.”
Play Video
[size=0.75]ECB Will Be Very Pragmatic in Implementing Policy, Says Bank of France Governor
Bank of France Governor and ECB Governing Council Member Francois Villeroy de Galhau
Source: Bloomberg
Fresh data shortly after they spoke again highlighted the damage done to the economy. German business confidence fell to the weakest in almost three years. Arguably more worryingly, the ECB’s own Survey of Professional Forecasters showed analysts have lowered their growth and inflation predictions -- including a downgrade to the long-term inflation outlook.
Speaking to reporters in Vilnius on Friday, Lithuania’s central bank Governor Vitas Vasiliauskas said he expected the ECB to revise its forecasts at the meeting in March to reflect the latest data. That would help determine whether the Governing Council will also need to change its rate guidance, which he saw no need to do “at this point in time.”
Asked if he’d like to lead the ECB, Coeure answered “who wouldn’t?” but that it’s not his decision to make. Villeroy de Galhau, 59, said that “it’s not up to us, it’s up to political leaders, which is very good in democracies” -- without ruling himself out.
The next president is likely to be either attempting to unwind crisis-era stimulus or battling the next downturn. Economic data for the 19-nation region have disappointed recently as weaker growth in China and persistent trade tensions took their toll on external demand. Other major central banks are also taking a step back -- even the U.S. Federal Reserve has signaled it could pause rate hikes.
UBS Group AG President Axel Weber, a former ECB policy maker, said in Davos this week that the central bank has already missed its chance to normalize policy in this cycle.
“The slowdown has surprised us,” Coeure said. “A lot of the uncertainty is political, has political sources, first and foremost global trade.”
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