WASHINGTON (Reuters) -The European Central Bank should keep interest rates steady as long as inflation is close to 2% and should not try to overengineer policy in case of small deviations from its target, Austrian central bank chief Martin Kocher said on Thursday.
While inflation has hovered around 2% for months, projections show it dipping to 1.7% next year before a rebound in subsequent years, raising concerns among some policymakers about undershooting.
“For me, this is close to the target. We should not overreact in either direction,” Kocher, one of the newest members of the ECB’s rate-setting Governing Council, told a conference. “If you’re slightly above the target, overreaction is not advisable, in my view.”
The ECB has kept its deposit rate steady at 2% since June and markets see almost no chance of further easing this year, even if investors still see a one in two chance of a final cut by next June.
Kocher, repeating an argument used by several colleagues, said the ECB should stick with this policy stance and only act in the event of a new shock that would move the outlook beyond current expectations.
“I think there is a good argument to be made for not adjusting policy rates, for not trying to overengineer what we are doing, as long as we are close to 2%, as long as there are no shocks from outside,” Kocher said.
Still, he acknowledged that uncertainty remains exceptional and economic data over the summer has been noisy, making it difficult for policymakers to gain clarity over the outlook.
But growth is stable around 1%, a level that is not spectacular but remains close to the bloc’s potential output, Kocher added.
(Reporting by David Milliken; writing by Balazs Koranyi; editing by Susan Fenton and Hugh Lawson)
Comments