ECB’s de Cos: Ready to Adjust All Instruments to Ensure Progress Toward Price Stability

10 February 2021

By David Barwick – FRANKFURT (Econostream) – The European Central Bank remains ready to adjust its policy stance as needed to ensure further progress toward its goal of price stability, ECB Governing Council member Pablo Hernandez de Cos said Wednesday.

According to a text provided by the Bank of Spain, which he heads, De Cos said in a speech to an economics conference organized by Spanish daily El Diario Montañés that a ‘large degree’ of monetary stimulus will have to be maintained ‘as long as necessary’.

‘The recovery in euro area activity is fragile and subject to downside risks, given the uncertainty about the future evolution of the pandemic after its recent intensification in many countries, which only an acceleration in the vaccination process could counteract’, he said.

By maintaining an accommodative stance, the ECB ensures favourable financing conditions, supporting the economy while helping to achieve price stability, he said.

‘We remain ready to adjust all our instruments in an appropriate manner to ensure that inflation progresses towards our objective in a sustained manner, in line with our commitment to symmetry’, he said.

As for asset buys made under the pandemic emergency purchase programme (PEPP), these will be conducted ‘flexibly with the objective of avoiding a tightening of financing conditions and financial fragmentation within the area, both of which are incompatible with the objective of countering the downward impact of the pandemic on the inflation path.’

Policy measures had so far avoided an increase in non-performing loans in the banking system, he said. What ultimately happens in this respect depends on the crisis and the response to it, he said.

‘In any case, the projections suggest that there will be a significant increase in the doubtful assets ratio in the coming quarters, even in the most benign scenario’, he said. Banks should try to plan accordingly, he said.

However, he said, the process of becoming compliant again with capital requirements ‘should not start before the main effects of the pandemic have dissipated’, he said.

As for fiscal policy support measures, ‘[w]ithdrawing them would entail higher costs than maintaining them until activity shows signs of robustness’, he said.