MNI EXCLUSIVE I’VIEW: ECB Vasiliauskas; All Taper Options Open

–Rising Euro No Cause for Worry Since Spurred by Improving Eurozone Economy

By Jack Duffy

VILNIUS (MNI) – All options remain on the table for scaling back the European Central Bank’s massive E2.3 trillion bond buying program, ECB Governing Council member Vitas Vasiliauskas told Market News International in an exclusive interview.

Vasiliauskas said the council had not determined whether the reduction in bond purchases should be via a fixed schedule with a specified ending date or through an open-ended approach dependent on incoming data.

"I would prefer to have a concrete date or complete term as to how long we can be in the program," he said. But acknowledging there were differences on the council he said: "I think all options are on the table."

The ECB is considering plans to slow its QE bond buying from E60 billion a month and if so, for how long before ending the program completely. President Mario Draghi has said "the bulk" of those decisions could be taken at the council meeting on Oct. 26

Vasiliauskas, who heads the Lithuanian central bank, said he did not view the current appreciation of the euro to be a problem for QE tapering.

"I am not so very worried about the current exchange rate," he said. "It’s a sign that the economic situation in Europe is improving. Of course you should always keep an eye on the exchange rate, but at the current level, it’s OK," he said.

A further rise in the currency could be worrying, Vasiliauskas said, but it would depend on "what the reasons are for such an increase."

Vasiliauskas said he favoured a QE decision at the October meeting but that it would depend on getting agreement on the options that will be presented by ECB technical committees.

"Everything will depend on the outcome from committees," he said. "I wouldn’t say the we face a huge division but of course there is a discussion. I think it is very important to have a decision which can be owned by all members" of the Governing Council, he said.

Asked whether scarcity of bonds in different national markets could could cause changes in the QE program, he said that fine-tuning was always possible but there has been no discussion about changing fundamental parameters, such as allocating purchases according to the capital key.

"From conversations around the table everybody agrees that we do not discuss changes in parameters," he said. "I think capital key is a key element."

While the technical plan to reduce QE remained open for discussion, Vasiliauskas said there was a broad consensus on the Governing Council about the outlook for the Eurozone economy.

"Everybody agrees that the situation is very good," he said. "We talk more not about recovery but about robust growth — sizable growth you can see not only in GDP figures but among many many sectors in many countries."

Vasiliauskas said he was confident that inflation would eventually reach the ECB’s target of just under 2% but that it might take longer than expected. Because of more flexible labour markets and other factors the transmission of monetary policy to inflation dynamics is taking longer than it used to. "We need patience," he said.

On possible changes in ECB forward guidance, Vasiliauskas said the easing bias on QE — the ECB’s pledge to increase bond buying if necessary — should remain as long as the central bank does not see "a sustainable adjustment in the path of inflation towards its target."

In addition, he said the current "sequencing" of policy tools, in which the ECB has pledged not to raise rates until buying is completely wound down, should also remain in place, he said.

Whatever the ECB decides on its stimulus path exit, Vasiliauskas noted that a reduction in the flow of purchases would be offset to some extent by significant reinvestments from maturing debt.

"I think reinvestment is very very important," he said, adding that while the council had not seen definitive figures it had seen estimates that reinvestments could total E15 billion a month.

–MNI Paris Bureau; tel: +33 1-42-71-55-41; email: jack.duffy@marketnews.com
–MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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