EUROPEAN CENTRAL Bank governing council member Ewald Nowotny said policy makers would wait until December before discussing how to withdraw emergency measures to give the economy time to gather strength.
“We certainly won’t discuss the first quarter before December of this year,” Mr Nowotny told Bloomberg News in an interview in Bucharest yesterday. “We’re still facing an economic development with a very high uncertainty in many respects. It’s certainly too early to take a clear position.”
The ECB last week extended emergency measures for banks into 2011 to give them more time to patch up their balance sheets as the euro region’s recovery shows signs of weakening.
While the bank wanted to phase out that policy tool earlier this year, the region’s fiscal crisis forced a rethink. ECB president Jean-Claude Trichet said last week that risks to the economic outlook were “tilted to the downside”.
The Frankfurt-based ECB last week kept its benchmark interest rate at a record low of 1 per cent. Mr Nowotny called borrowing costs “appropriate” and said the bank would determine its exit based on revised economic projections in December. “The current rate levels are extraordinarily low over the longer term, which means that we’ll certainly start a normalisation process as soon as possible, starting on the liquidity-provision side,” he said. “It’s definitely the ECB’s policy to set an exit strategy from extraordinary measures that’s in line with overall economic projections.”
Mr Nowotny’s remarks echo comments by his German colleague Axel Weber, who said in August that “most of these discussions about the continuation of the exit” will be “focused on the first quarter” of 2011.
Mr Weber, who heads the Bundesbank, also said it was “clear” that the bank would need to re-embark on a normalisation procedure.
The ECB said last week it expected the 16-member euro region to expand about 1.6 per cent in 2010 and about 1.4 per cent in 2011. It previously forecast growth of 1 per cent and 1.2 per cent this year and next respectively. Mr Nowotny said that while he didn’t expect a double-dip recession in the US or the euro region economy, the ECB remained “very cautious” about the economic outlook. – Bloomberg
