Visco: ECB must keep monetary policy loose

ROME • The European Central Bank (ECB) must maintain its expansive monetary policy for some time to counter deflation risks, Governing Council member Ignazio Visco said in an interview with Italian newspaper Il Corriere della Sera.

“Price changes tend to be very low, if not negative, and a gap has been created with our goal of price stability, with effects that can be dangerous,” said Visco, who is also the governor of the Bank of Italy (BoI). “For this reason, monetary policy must be expansive and remain so for a long time. Through our monetary policy, we are able to intervene effectively to defeat deflation.”

Visco argued in favour of changing the ECB’s inflation goal — currently set at below, but close to, 2% — because it’s “vague and difficult to understand”. The new target should be symmetrical at about 2% in the medium term, he said.

The ECB is currently conducting a strategic review, with results to be published in September next year. Visco said he’d also support to increase transparency by attributing opinions conveyed in the accounts of Governing Council meetings to the relevant policymakers.

Speaking about the impact of the coronavirus pandemic on Italy, Visco warned of a prolonged decline in demand, saying policymakers must “do everything to reduce uncertainty”.

He backed the ECB’s request that European banks increase loan-loss provisions — even before the expiration of loan moratoriums in several countries.

“The supervisory authority knows very well that non-performing loans will increase,” said Visco, urging banks to use their capital buffers to protect against bad debt.

“If we do not immediately book in the balance sheet what manifestly cannot be recovered, the banks will accumulate losses so large that they will require rapid and substantial recapitalisation, perhaps in difficult market conditions.” — Bloomberg