Brussels: The European Central Bank will be able to gauge next year whether it needs to start buying sovereign bonds to help stimulate the eurozone economy, its deputy president said Wednesday.
"During the first quarter of next year we will be able to gauge better" whether the ECB`s previous stimulus measures are working, the central bank`s number two, Vitor Constancio, said in a speech prepared for delivery in London.
"If not, we will have to consider buying other assets, including sovereign bonds in the secondary market," Constancio said.
In a range of measures to avert deflation -- a downward spiral of falling prices -- in the 18 countries that share the euro, the ECB has cut its key interest rates to new all-time lows and pumped unprecedented amounts of liquidity into the system.
More recently, it has started buying covered bonds and asset-backed securities with a view to increasing the size of its balance sheet in order to boost inflation in the single currency area.
It has said it wants to bring its balance balance back to the size it had in early 2012, which would entail boosting it by around 1.0 trillion euros ($1.25 trillion) from its current level.
"We have, of course, to closely monitor if the pace of its evolution is in line with that expectation," Constancio said.
The euro area is currently experiencing a period of very low inflation, way below the ECB`s target of around 2.0 percent.
That is dangerous because it could tilt the eurozone into deflation, where falling prices prompt consumers and businesses to delay purchases hoping that goods will become still cheaper in the future. This weighs on production and can lead companies to lay off workers.
Constancio`s comments are the clearest signal yet from the ECB on the possible timing of any decision to buy sovereign bonds, a policy known as quantitative easing that other central banks around the world have pursued to stimulate their economies, but that the ECB has so far shied away from.
Critics argue that QE is equivalent to the ECB printing money to pay off national governments` debt, which is strictly prohibited under the euro bank`s statutes.
Germany, in particular, is opposed to any such programme, arguing that it takes the ECB outside its mandate and takes the pressure off governments to reform and get their finances in order.
But Constancio rejected such an interpretation.
"It would be a pure monetary policy decision, buying accordingly to our capital key, within our mandate and our legal competence," Constancio said.
"It is not the task of a central bank to exert more or less pressure on governments to adopt policies for which they are responsible. Central banks deserve their independence on account of their responsibility for price stability," Constancio insisted.
The ECB`s policy-making governing council is scheduled hold its next regular monthly meeting on December 4.
