TOKYO( Top Mcx Tips.com) –The European Central Bank’s signaling it will expand its balance sheet by around EUR1 trillion is an indication of how the bank is ready to do anything to stoke inflation, said a European Central Bank Governing Council member Christian Noyer Tuesday, suggesting that purchases of government debt could also be in the cards.
The statement by the ECB’s Governing Council on the size of the bank’s balance sheet is “not formulated as a firm commitment but as an expectation. Nevertheless, it is very significant,” said Mr. Noyer, who also heads the Bank of France, in Tokyo. “It should certainly be seen as a clear indication that further policy action, if necessary, will not be inhibited by any overall quantitative restraint or limit.”
ECB head Mario Draghi has effectively said earlier this year that the bank will increase its balance sheet by about 1 trillion euros using cheap loans to banks and private-sector asset purchases to stoke inflation.
Many economists and central bankers are concerned that the euro zone could fall into sustained deflation similar to that experienced by Japan, and risk seeing decades of low economic growth. Inflation has been far below the ECB’s medium-term target of close to 2% inflation.
Mr. Noyer said that guidance on the size of the ECB’s balance sheet “can only help in bringing expectations more in line with our definition of price stability.”
He also said that concerns about “fiscal dominance” – where sovereign bond purchases by the central bank support the solvency of a central government – should not be an issue in a low inflation environment.
That is in line with recent comments from the central banker, who has said that he would not see an issue with the ECB making purchases of sovereign debt.
Mr. Noyer was speaking alongside Hiroshi Nakaso, deputy governor of the Bank of Japan.