HELSINKI: The European Central Bank should review its policy tools, such as bond purchases and negative interest rates, so they reflect the changed economic environment since the financial crisis, ECB rate setter Olli Rehn said on Tuesday.
The ECB has credited its 2.6 trillion euro ($2.96 trillion)money-printing scheme, sub-zero rates and policy guidance for staving off the threat of a prolonged fall in prices in the euro zone in the past few years.
Rehn, who heads Finland’s central bank and has been tipped as a potential successor to Mario Draghi when the ECB president leaves in on Oct. 31, 2019, said the unconventional tools should be reviewed in light of recent experience and economic literature.
“It is necessary to do an inventory of the tools that the ECB has had at hand, to review their functionality,” Rehn told a news conference. “For instance, the effectiveness of negative interest rate, of purchase programmes and of forward-looking guidance.”
He added he had floated this idea informally with colleagues, receiving “mixed but also positive” feedback.
Draghi announced the end of the ECB’s quantitative easing (QE) programme last week but cautioned it should be regarded as a permanent part of the ECB’s toolbox.
A review might be welcome in cash-rich countries where the ECB’s ultra-easy policy has been criticised for penalising savers and inflating bubbles in bond and property prices, for example in Germany.
Rehn, however, did not want to prejudge its outcome.
“Considering a review of the ECB’s monetary policy framework would prove useful even when the ECB Governing Council is satisfied with the current strategy,” he said.
The ECB’s Governing Council agreed last week to stop new bond purchases after nearly four years. However, it has pledged to keep its stock of debt stable for a long time and maintain rates at their record low levels at least through next summer.
The euro zone’s central bank last reviewed its policy strategy in 2003, when it changed its definition of price stability as an inflation rate below but close to 2 percent.
Its foray into unconventional policy tools was not unprecedented.
The Federal Reserve, Bank of England and Bank of Japan also carried out massive bond-purchase programmes in the wake of the crisis and Sweden’s Riksbank pushed its deposit rate below zero in 2009.