—Governing Council’s Mersch Expresses Lukewarm Support for Lagarde
By Laurie Laird
LONDON (MaceNews) — A top European Central banker Monday expressed opposition to a symmetrical inflation target and raised questions over the efficacy of further rate cuts, while withholding full support for the central bank’s leader.
“Symmetry does not mean that we would engage in any sort of make up,” should inflation exceed the ECB’s target, said Governing Council member Yves Mersch, addressing a virtual event held by the Official Monetary and Financial Institutions Forum. The ECB “dislikes inflation as much as we dislike deflation.”
ECB President Christine Lagarde discussed the merits of symmetrical inflation targeting at the end of September, but stopped short of committing the Bank to such a policy. The ECB has failed to meet its inflation target of close to but less than 2% over the past decade, and consumer prices have actually fallen over the past three months.
Mersch declined to broadly endorse Lagarde’s leadership, choosing “not to comment” in response to a question from a conference attendee. However he vowed to “continue to support her” as the “strength of the ECB is its institutional strengths,” adding that “the ECB doesn’t want to be popular.”
The long-term ECB rate setter also queried whether a drop in eurozone interest rates could provide effective stimulus, putting him at odds with other governing council members who have asserted that the sub-zero deposit rate could fall further without dampening bank lending. The so-called reversal rate “is yet another unobservable,” he said, suggesting that the bank’s Targeted Long-Term Refinancing Operations is the “most efficient rate to ensure the best possible” financial conditions. Banks are able to access a portion of TLTRO funds at a rate as low as -1.0%.
However, Mersch suggested that the ECB is likely to retain or expand its Pandemic Asset Purchase Programme following a “recalibration” of its policy instruments at its meeting on 10 December. A tapering off of the PEPP is “not on the agenda right now.”
He was “not willing and not able to comment” on further monetary measures, but suggested that deliberations are ongoing and dependent on incoming economic data.
Mersch, the only Governing Council member to serve continuously since the body came into being in 1998, will leave the committee after the December meeting.
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Contact this reporter: laurie@macenews.com.
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