Several weeks ago, a major impediment to implementing a quantitative easing policy by the ECB was removed when the head of the typically conservative Bundesbank’s, Jens Weidmann, publicly announced his support for unconventional monetary policies if deflation continues to threaten the economy. The Bundesbank Chief’s change of heart seems to have had a significant influence on the remaining conservative members of the ECB policy board.
In the strongest signal yet, ECB president Mario Draghi declared that the 24 member governing council was united in its support for unconventional quantitative easing policies if inflation rates continue to decrease. Mr. Draghi went on to say “All instruments that fall within the mandate, including QE, are intended to be part of this statement.” However, the council did note that they have yet to exhaust conventional methods to combat low inflation and that unconventional monetary policies would only be implemented after trying additional rate cuts.
Mr. Draghi statement reveals that the ECB is willing to implement a quantitative easing policy not only if prices begin to fall but also if inflation remains low. Given that inflation rates in the Eurozone remain at 0.5%, less than a quarter of the ECB’s 2% target, and the near absence of price pressures in the economy, a quantitative easing policy in the Eurozone seems to be more and more likely.
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