ECB officials warn of risks as confidence slides – ABN AMRO

Nick Kounis, head of financial markets research at ABN AMRO, points out that the ECB officials that backed the central bank’s stimulus package warned of the growing risks to the economic outlook.

“Ignazio Visco, the Governor of the central bank of Italy, said that ‘the economic situation is worse than we imagine and therefore we cannot risk losing control of inflation expectations’. Meanwhile, Olli Rehn, Governor of the central bank of Finland asserted that the ECB ‘should take care to avoid the sort of harmful equilibrium that arises from prolonged low inflation and zero interest rates, as this would significantly constrain the capacity for monetary policy to balance the economic cycle’. He added that the inflation outlook is very subdued and that the medium-term inflation rate is seen clearly below the ECB target. Finally, Luis de Guindos, ECB Vice President said that risks are tilted to the downside and noted that the ‘level of economic activity in the euro area remains disappointingly low’. These dire warnings come against the background of weakening economic data on both sides of the Atlantic. At the same time, market-based measures of inflation expectations have fallen further. We continue to expect the ECB to step up the pace of monetary stimulus in the coming months.”