1130 GMT January 26, 2020
With growth slowing and inflation staying well below the ECB’s target, the bank recently raised the prospect of even more stimulus, arguing that a rate cut or even more asset purchases may become necessary, according to Reuters.
“What we need to see is a de-anchoring of inflation expectations,” de Guindos told Italian newspaper Corriere della Sera when asked what the bank needed to see to provide more stimulus.
“This has not yet happened, despite the fact that there has been a drop in market-based inflation expectations.”
With interest rates already at record lows and a €2.6 trillion ($2.9 trillion) bond purchase scheme ended just last year, analysts argue that the ECB has very little actual firepower left as its remaining tools lack significant potency.
“If there is a further deterioration, then we will react,” de Guindos added.
“But for now, our monetary policy stance is fully compatible with both inflation and real activity.”
But de Guindos added that monetary policy is largely powerless against the impact of global trade disputes, one of the biggest drags on growth and thus inflation.
“You can certainly smooth the impact with monetary policy, but you will not be able to address and fix this kind of problems with monetary policy,” he said.