FRANKFURT (Reuters) - Euro zone growth is picking up but underlying inflation is still weak so the European Central Bank should adjust its policy carefully and flexibly to avoid abrupt market moves, ECB board member Benoit Coeure told two European newspapers.
The ECB has already begun to adjust its stance when it cut asset buys last year but given weak inflation there is no reason now to change strategy, Coeure told France’s Le Monde and Italy’s La Stampa in a joint interview.
ECB President Mario Draghi opened the door to policy tweaks last week, sending bonds yields and the euro sharply higher as markets now expect the central bank to announce a tweak of asset buys as soon as September.
“If needed, the Governing Council will continue to adjust its instruments both qualitatively and quantitatively,” Coeure was quoted on Friday as saying. “But when this is needed, it should do so carefully and flexibly, and based on what matters for us within the framework of our mandate: the inflation outlook.”
“We must be transparent in our communications on these developments,” he said. “Otherwise we run the risk of a more abrupt adjustment for the markets when the decisions are actually taken.”
Coeure noted that while growth is accelerating and becoming broad based, this was mostly a result of ultra-easy ECB policy, not yet backed up with structural policies that would sustain the expansion.
“The recovery has finally arrived. It has spread to virtually all sectors and countries. This is excellent news,” Coeure said. “But it would be unwise to let our guard down, because this recovery is of a cyclical nature and builds on significant support from monetary policy.”
But Coeure also warned euro zone governments, which enjoyed ultra-low borrowing costs, that cheap financing may be coming to an end.
“The increase in long-term interest rates is the result of consolidating growth. Governments and financial players must prepare themselves for it. They are aware of that,” he added.
Reporting by Balazs Koranyi; Editing by Jacqueline Wong