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UPDATE 1-Nowotny sees no immediate need for ECB to act
April 7, 2014 / 8:12 AM / 4 years ago

UPDATE 1-Nowotny sees no immediate need for ECB to act

* Nowotny says variety of options under review

* His preference for unconventional steps is boosting ABS market

* Says focus should be on core inflation (Adds quotes and background)

VIENNA, April 7 (Reuters) - The European Central Bank has no immediate need to take steps to counter stubbornly low inflation because a strengthening of Europe’s economy should reduce the danger of deflation, ECB policymaker Ewald Nowotny said on Monday.

He told reporters the ECB was watching developments closely as it weighed whether further steps including unconventional measures might be warranted.

“It does not mean that steps are to be taken immediately, rather that one prepares for all eventualities,” he said.

Should unconventional measures be needed, Nowotny said he preferred strengthening Europe’s asset-backed securities (ABS) market. But he added that a range of measures was under review and that no sequencing of steps was being considered.

The European Central Bank opened the door on Thursday to turning on its money-printing presses to boost the euro zone economy and keep inflation from staying too low.

“In my personal view I prefer measures that are as close as possible to the market. That means in my view the first measure is a strengthening of the ABS market in Europe,” he said, adding this could directly boost prospects for financing small and mid-sized companies while having a positive monetary policy effect.

“This doesn’t mean that other things are ruled out in principle, but my personal focus would be on this area.”

He said a further rate cut was not ruled out but questioned “if a rate cut now really has an impact or perhaps whether other measures perhaps are more effective”.

Nowotny noted that core inflation in Europe had held relatively stable even as headline consumer prices in the euro zone were up only 0.5 percent, well below the ECB’s target of close to but below 2 percent.

“The low inflation rates are very significantly driven by developments in energy prices, over which the ECB has very limited influence - if at all via the exchange rate,” he said.

“Therefore I believe that in this situation the aspect of core inflation is the more important,” he said, noting that strong wage increases in key countries like Germany this year should help address low inflation, especially in the services sector. (Reporting by Michael Shields; Editing by Hugh Lawson)

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