ECB's Nowotny Says QE Could Be Useful

By Todd Buell 

        FRANKFURT--Momentum appears to be building for quantitative easing at the ECB, with the head of Austria's central bank saying broad-based purchases of assets, including government bonds, could be "useful."
        "[QE] can certainly be useful as support in the framework of a plan," Mr. Nowotny told journalists after a speech. He also said additional measures that would go beyond the policies the ECB has already agreed to, with the goal of raising the size of its balance sheet, "are in the discussion stage and aren't yet decided."
        The remarks by the Austrian central banker, who sits on the ECB's 24-member governing council, are noteworthy because he has in the past signaled skepticism concerning the benefits of broad-based asset purchases, known as quantitative easing. Central banks in the U.S., U.K. and Japan have made quantitative easing a central part of their toolkit, but the ECB has largely resisted following suit with this policy as its more conservative members, particularly in Germany, have balked at the idea.
        In an October interview with The Wall Street Journal, Mr. Nowotny said that European proposals to increase investment spending made "much more sense to discuss, than to discuss QE perspectives."
        The ECB is, however, drawing closer to QE. At its most recent meeting last week, the central bank's president Mario Draghi left the door open for wide-ranging asset purchases as soon as next month. Under its new meeting rotation system next year, the next ECB policy meeting won't be until Jan. 22.
        On Monday, the Austrian central banker had particularly glum words for the eurozone's economic outlook, signaling concern about the future path of the currency bloc, which will have 19 states starting in 2015. "For the first quarter of 2015, we must expect falling inflation rates with a large probability," he said. As a result, inflation is moving into "a very sensitive area," he added. He also spoke of a "massive weakening" of the eurozone's economic momentum and that at least for the short-term, the eurozone was the weak spot of the global economy.
        Weak inflation is of particular concern for the ECB. The Frankfurt-based central bank targets inflation over the medium-term at just below 2%. Inflation is currently nowhere near that. The most recent official data showed inflation at only 0.3% in November and some experts think that it will keep falling. This presents a particular challenge for central bankers as they try to prevent the onset of deflation, where prices, wages and output fall and the real price of debt rises.
        Hans Bentzien and Brian Blackstone contributed to this article.
        (END) Dow Jones Newswires

        December 08, 2014 07:41 ET (12:41 GMT)

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