FRANKFURT (Reuters) - Further changes in the European Central Bank’s policy guidance could smooth its exit from years of aggressive stimulus, ECB board member Benoit Coeure said on Friday.
The ECB is seeking to keep borrowing costs in check even as it winds down its 2.6 billion euro bond buying program and prepares to raise rates sometime next year.
To do so without spooking investors, Coeure said the bank could use changes to its “forward guidance”, a regular update about its policy intentions that the ECB introduced at the height of the crisis as part of its efforts to steer inflation expectations in the market.
“If communication indeed provides an effective shield, then further changes in our forward guidance, if warranted in the future, may help us remain in control of financing conditions along the policy normalization path,” he said in Paris.
Repeating the ECB’s standard policy guidance, Coeure added for the euro zone, significant monetary policy stimulus is still needed to raise inflation back to the bank’s target of almost 2 percent.
“Forward guidance” has been, along with negative interest rates and massive bond purchases, one of the new or long forgotten tools that central banks have wheeled out in the past decade in response to the global financial crisis.
ECB President Mario Draghi, one of the architects of this unconventional policy response, said new tools may be needed in the future.
“We cannot foresee now what those challenges might be, but if and when they arise, they may require us to adjust our policy space once more to meet our mandate,” Draghi told an audience in Brussels.
Draghi’s mandate is due to run out at the end of October 2019.
Reporting by Francesco Canepa in Frankfurt and Balazs Koranyi in Brussels; Editing by Toby Chopra