ECB's Visco says new stimulus was necessary to counter deflation risk

MILAN: European Central Bank policymaker Ignazio Visco said on Saturday recent expansionary measures agreed by the bank were necessary to counter the risk of a return to deflation in the euro area.

Earlier this month the ECB, in Mario Draghi’s last policy meeting as the central bank’s chief, pledged new indefinite stimulus to revive an ailing euro zone economy, a decision opposed by a third of the policymakers.

 “We must counter the significant risk that the economic slowdown and the low level of inflation translate into a permanent reduction in inflation expectations or a re-emergence of the threat of deflation,” Visco said during a conference.

Visco, the governor of the Italian central bank, added that experience gathered during the global financial crisis and the sovereign debt crisis taught that “in these circumstances excessive prudence is counter-productive”.

The ECB’s move toward further monetary stimulus prompted open and strong criticism from several euro zone policymakers, including the central bank chiefs of Germany, France and the Netherlands, who voiced doubts about the need and effectiveness of a package that could consume most of the bank’s remaining firepower.

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This week, Sabine Lautenschlaeger, a German member of the ECB’s board, decided to step down in what was seen as a further backlash against the latest stimulus measures.

Usually soft-spoken, Visco said he did not think comments made by some governors after September’s policy meeting were guided by preconceived ideas or by political considerations.

However, he added it was important “to avoid the risk that, also due to the extemporaneous nature of the remarks made, the positions of the individual council members be interpreted as an expression of national perspectives or interests”.