ECB’s Lane: Growth, HICP to Return to Pre-Pandemic Levels by End-2021

1 February 2021

31st January 2021

By David Barwick – FRANKFURT (Econostream) – Eurozone growth and inflation would revert this year to their levels of prior to the pandemic, European Central Bank Executive Board member Philip Lane said on Sunday.

In an interview with German daily Süddeutsche Zeitung posted to the ECB’s website, Lane, who is also chief economist, said, ‘We expect economic growth and inflation in the euro area to return to their pre-pandemic levels before the end of this year.’

Asked whether the ECB might decide to distribute money directly to citizens of the euro area, Lane said that the ECB ‘should focus on the policies that we are actually pursuing and the options that are on the table, and not the outer reaches of monetary theory.’

In the context of the ECB’s expectations for a recovery of growth and inflation this year, Lane added that ‘[i]f economic developments are reasonably stable and moderate, monetary policy should be similarly stable and moderate.’

Although all policy options are ‘considered at some level’ of the Eurosystem, purchases of equities or bank bonds ‘are not part of our current toolbox’, he said. ‘Our active toolbox is a combination of our short-term rates, asset purchases, targeted lending and our forward guidance, which is not only about explaining today’s policy, but also about how we would respond to unfolding conditions in the future.’

Lane downplayed the ECB’s role in enabling high government debt via low borrowing costs, calling national governments’ joint actions ‘the far more important aspect’, even if ‘central banks are playing an important supporting role.’

‘But the reason for the low interest rates and our bond purchases are the low inflation pressures, which is also true in the United States and in the United Kingdom’, he said. ‘We need to have a very supportive monetary policy, because without that we're not going to maintain stable prices and we're not going to bolster a recovery.’

He avoided answering directly whether there was an upper limit to the ECB’s willingness to hold Eurozone sovereign debt, 30% of which is on the ECB’s books, he noted.

‘It’s important to keep in mind that sovereign bond purchasing is a worldwide phenomenon’, the ECB has ‘safeguards in place’, he said. The ECB’s actions are ‘driven by the price stability mandate and asset purchase programmes are only required when inflation pressures are too weak and interest rates are already very low’, he said.

Lane described ECB monetary policy as ‘a team effort – I, as chief economist, work in close coordination and agreement with the President.’

His earlier post-press conference blogs backfired, he conceded. ‘The intention was to reinforce and support the communication of our monetary policy decisions across multiple channels. But perhaps it was all a bit too much. I stopped doing the blog on the day after the press conference in the autumn, because if it led to perceptions of difference, then it was problematic.’