ECB should stand pat until at least autumn: Vasiliauskas

FRANKFURT (Reuters) - The European Central Bank should not discuss whether more policy action is needed until autumn even if there may be more months of falling prices ahead, Governing Council Member Vitas Vasiliauskas said on Wednesday.

Lithuania's central bank governor Vitas Vasiliauskas speaks during the Euro Conference in Vilnius September 25, 2014. REUTERS/Ints Kalnins/File Photo

“The current situation is stable with positive perspectives,” Vasiliauskas, who also heads Lithuania’s central bank, said in a Reuters interview. “So if you ask me what do you think about possible steps during the summer, my answer would be: nothing. First of all, we should implement what was agreed.

“Let’s wait until the autumn, I think; now it is too early to discuss,” he said.

Vasiliauskas, however, said the ECB was prepared to act and could even expand its asset buys into new sectors in case of further inflation shocks.

He said inflation may stay negative for several more months, only rising back firmly into positive territory toward the end of the year, but the risk of deflation was modest and the tendency positive.

“There always exists a risk (of deflation) ... but the tendency is quite positive and I give a more than 50 percent (chance) that we can end this year without deflation,” he said.

Wages are a particular concern for the ECB because low inflation could hold back pay rises, perpetuating low inflation.

Indeed, fresh data from the ECB on Wednesday showed that negotiated wages were up just 1.40 percent on the year in the first quarter, the second straight quarterly slowdown and the lowest reading since 1991.

Fighting ultra low inflation, the ECB has cut its deposit rate deep into negative territory and is buying 1.7 trillion euros ($1.92 trillion) worth of mainly government debt to push down borrowing costs, kick start growth and boost prices.

Inflation has hovered on either side of zero for the past year and the ECB does not expect it to rise back to its target of close to 2 percent through 2018.

The recent rise in oil prices could support inflation but when asked if he thought the rally was sustainable, Vasiliauskas said: “I don’t think so”.


Still, if action was needed again, the ECB has plenty of tools at its disposal and it could even expand into new asset classes, Vasiliauskas said.

“My personal view is that we can think about new classes of assets, if there will be a need,” he said. “The most important factor when we discuss assess classes is related to the direct transmission channel to the real economy.”

When asked if equity and property buys would have such direct transmission effect and could be considered, Vasiliauskas said yes.

He added that the ECB should not draw any red lines and act on incoming information, tailoring its policies to the situation.

Dismissing criticism of the ECB’s policies, Vasiliauskas said there was no credible alternative out there and the bank would continue on the current path.

“Markets saw that if needed, we act, and that tendency will continue,” he added.

Reporting by Balazs Koranyi and Francesco Canepa Editing by Jeremy Gaunt