Interview: ECB Council Member in Inflation Warning

Jan Smets, a member of the European Central Bank’s rate-setting governing council, has warned that the euro-zone’s period of low inflation is a serious concern for monetary policy. But the governor of Belgium’s central bank said all options were on the table to tackle the problem.

“Inflation is too low. Even if this low inflation is related mainly to falling oil prices, there is a danger that it will have a negative impact on inflation expectations, and they could lose their anchoring,” he said in an exclusive interview with Handelsblatt. “As central bankers, it is our job to be concerned. We will re-evaluate the situation at our next council meeting.”

Mr. Smets backed ECB President Mario Draghi’s call for the central bank to consider additional steps, including expanding its bond-buying program, at the December meeting of the governing council, which sets monetary policy for the 19-nation euro zone.


“All the available instruments within our mandate are on the table. If necessary, we could for example adjust the size, composition and duration of our asset purchases” he said.

Mr. Smets would not rule out that the deposit rate – the penalty rate the ECB charges banks to park their reserves at the central bank – could also be adjusted, even though it is already in negative territory. He said that while “technical reasons” would make another reduction difficult, if the circumstances change, “we have to re-evaluate the situation.”

While the euro zone is doing better economically now than a year ago, Mr. Smets said the ECB’s monetary policy should reflect the future risks and not just focus on the current rate of growth and inflation. He made clear that there are still risks of another economic downturn.

“The downside risks to growth, inflation and inflation expectations have increased,” he said. “We must look at future risks when making monetary policy decisions and act pre-emptively, before threats to our mandate of price-stabilization materialize.

Mr. Smets said it was important to assess the risks to monetary policy in 2016 and 2017. The problems in China and other emerging markets have hit global growth prospects, and could affect euro-zone exports to the region.

He added that one of the biggest impacts of China’s slowdown is that it weakens confidence and trust in the global economy and makes investors more risk averse.

Read the full interview in Thursday’s edition of Handelsblatt Global Edition at 12:00 Central European Time.

Picture Source: Erik Luntang for Handelsblatt