FRANKFURT, Germany (AP) — A top European monetary official is downplaying the risks for the 19-country euro currency union from an economic slowdown in China and low oil prices.
But Jens Weidmann also cautioned that a long period of excessively low inflation could mean trouble by challenging the credibility of the European Central Bank’s monetary policy.
The mixed remarks Thursday come as the European Central Bank prepares to weigh expanding its stimulus measures at its next meeting March 10. Weidmann, who heads Germany’s central bank and therefore also sits on the ECB’s policy council, is regarded as a stimulus skeptic and made several comments that could argue against more action.
He said in the text of a speech to be delivered in Bonn, Germany, that he saw “no indications of a steep economic collapse in China” that would threaten the eurozone economy but rather an adjustment of excessive share prices there.
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And he called cheaper oil “an economic tail wind” for consumers that would help boost growth in the currency union, which is a major oil importer.
Weidmann, however, balanced his remarks with comments that could be seen as supporting more stimulus. For instance, he said that low oil prices could mean that this year’s inflation forecast must be “substantially lowered” — a step that could push the ECB to act to achieve its goal of higher inflation.
He also said that any prolonged failure on the part of the ECB to boost inflation close to its goal “surely represents a stress test for the credibility of monetary policy.”
ECB head Mario Draghi has awakened market expectations for action March 10, such as adding to the 60 billion euros a month in bond purchases with newly printed money. The goal would be to push up inflation from only 0.2 percent annually toward the bank’s goal of just under 2 percent. Lower oil prices have hampered the bank’s effort to reach that goal.
The written summary of the Dec. 3 meeting indicated Draghi faces skepticism about the benefits of doing more from some members. The bank did increase stimulus at that meeting by extending its bond purchases by six months and by cutting the rate on deposits from commercial banks from minus 0.20 percent to minus 0.30 percent, a step aimed at pushing banks to lend money rather than hoard it.
But those steps were less than markets had expected, and the no-names written summary released later indicated there was some opposition to any added stimulus.