mf-sol.com | ECB Eyes Data as Slowdown Proves `Significant,’ Villeroy Says
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ECB Eyes Data as Slowdown Proves `Significant,’ Villeroy Says

ECB Eyes Data as Slowdown Proves `Significant,’ Villeroy Says

ECB Eyes Data as Slowdown Proves ‘Significant,’ Villeroy Says

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February 17, 2019, 2:57 AM EST

A boat travels the River Main past the European Central Bank (ECB) skyscraper headquarters in Frankfurt.

Photographer: Alex Kraus/Bloomberg

ECB Eyes Data as Slowdown Proves `Significant,' Villeroy Says

A boat travels the River Main past the European Central Bank (ECB) skyscraper headquarters in Frankfurt.

Photographer: Alex Kraus/Bloomberg

Photographer: Alex Kraus/Bloomberg

The slowdown of the European economy is “significant” and the European Central Bank could change its interest-rates guidance if it becomes clear the situation isn’t temporary, Governing Council member Francois Villeroy de Galhau said.

The extent of the weakness at the end of 2018 has taken policy makers by surprise, with Italy entering recession and Germany narrowly avoiding the same fate. The ECB has so far stuck to its guidance that it will keep borrowing costs at record lows at least through the summer, indicating hikes could come after that.

Asked an interview with Spanish paper El Pais if poor economic data decreases the likelihood of a rate increase after the summer, Villeroy said the ECB will look at the numbers. “The key question will be if the slowdown is temporary — with a bounce-back during this year — or more durable,” he said.

The comments are another dovish signal after Executive Board member Benoit Coeure said Friday the ECB is discussing whether to offer new longer-term loans to banks. Investors responded to Coeure’s comments by selling the euro and buying bank stocks.

Villeroy said in the interview that the ECB could be “extremely efficient” using a trio of instruments, including tools for increasing liquidity to banks, as well as its stock of asset purchases and interest rates.

“We will be pragmatic in using this trio,” he said.

Villeroy, who is also governor of the Bank of France, said the main problem facing the euro-area economy is global political uncertainty. That hurts Germany more than other European countries like France and Spain, where economies rely more on domestic demand, which is resilient, he said.

“If political leaders are able in the months to come to diminish this uncertainty, it would significantly improve the economic picture,” Villeroy said.

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