WASHINGTON, April 13 (Reuters) - The European Central Bank is ready to make asset purchases if it deems them necessary to counter a too prolonged period of low inflation in the euro zone, ECB Executive Board member Benoit Coeure said on Sunday.
In a speech in Washington, Coeure added that the ECB would have to decide whether such asset purchases, or a form of quantitative easing, would be useful and comply with its mandate.
Quantitative easing occurs when central banks print money to buy assets.
They would also have to be designed to take account of the segmented nature of financial markets in Europe and the interest rates in different countries that provide the benchmarks for loan pricing.
“Asset purchases are an instrument that we are ready to use if we deem necessary,” Coeure said in the text of the speech for delivery at a conference organised by the International Monetary Fund.
Euro zone inflation is running at 0.5 percent - far below the ECB’s target of just under 2 percent over the medium term.
The ECB opened the door after its policy meeting earlier this month to turning on its money-printing presses to keep inflation from staying too low. But it shows no sign of embarking on quantitative easing any time soon.
“Further monetary easing is ... not excluded, but remains contingent on outcomes,” Coeure said. “If such easing is called for, the Governing Council is unanimous in its commitment to use also unconventional instruments within its mandate.”
Coeure singled out targeted asset purchases as a policy option open to the ECB, should it need to take further action.
“In practice, purchases would naturally be linked to the interest rate maturities that are most important for firms’ and households’ investment and consumption decisions,” he said. “In the euro area, this tends to be the intermediate to longer part of the yield curve.”
Several ECB policymakers have deep reservations about pursuing a U.S.-style programme of sovereign asset purchases. Against that backdrop, the ECB is scrambling to boost Europe’s securitised debt market - on which it could intervene.
In the strongly bank-dependent euro zone economy, a more active market for asset-backed securities (ABS) would help banks lighten the load on their balance sheets and enable them to lend more.
Coeure did not single out which assets the ECB could buy but said: “Overall, the yardstick for the success of any targeted asset purchases would not be the size of our balance sheet, but the observable effect of our operations on term premia across markets and jurisdictions.”
“Or put differently, asset purchases in the euro area would not be about quantity, but about price,” he added.
Writing by Paul Carrel; editing by Keiron Henderson