The heads of both the German and Finnish central banks, two of the most hawkish in the Eurozone, talked with relative ease about negative rates and quantitative easing (QE) today.
According to Reuters, Germany and Finland’s governing council members are among the most hawkish in the currency union.
Finland’s Erkki Liikanen told the Wall Street Journal today that the European Central Bank (ECB) would allow purchases from secondary markets, adding that the potential for a negative deposit rate “isn’t any longer a controversial issue”.
Jens Weidmann of the German Bundesbank said earlier that while it was important to “ensure that the prohibition of monetary financing is respected”, QE is not “out of the question”.
The euro-dollar exchange rate looks makes it seem like markets paid attention.
“The comments sound somewhat more open-minded to the idea of additional policy action from the ECB, including unconventional measures,” according to Ken Wattret of BNP Paribas.
ECB President Mario Draghi added at a later speech in Paris that short-term real rates will move to become even more negative, and that the bank stood ready to take further necessary measures – but he stopped short of mentioning specific measures.
Of the other notably hawkish members, the Netherlands’ Klaas Knot has recently said that he doesn’t believe the ECB should purchase assets except as a last resort. Luxembourg’s Yves Mersch seems perhaps most opposed, holding to Jens Weidmann’s previous view that QE would be a major legal challenge for the central bank.
BNP Paribas previously came out to forecast that the ECB would begin a programme of QE in the summer, with both money supply growth and inflation at anaemic levels.