FRANKFURT: The European Central Bank’s chief economist said weaker oil prices could unbalance inflation expectations and that the ECB may need to launch quantitative easing (QE) to keep prices stable.
Peter Praet said the plunge in oil prices could mean euro zone inflation is negative during substantial part of 2015 and that price competition resulting from weaker oil prices could contribute to the de-anchoring of inflation expectations.
Praet said there was a risk that ECB measures including cutting rates to record lows, offering banks cheap long term loans and buying secured private debt, might not be enough especially against a backdrop of weaker oil prices.
Further Praet said if my assessment is that there is a need for further accommodation, and if I were willing to cut rates if that had been possible, then I should not be paralysed by the fact that the only option is to buy sovereign bonds.
He said unfortunately sovereign bonds were the only securities with significant market volume, he adding that the corporate bond market was too small and bank bond purchases could raise concerns as the ECB is also the bank supervisor.