Anybody hoping the ECB is going to buy stocks at some point will probably be disappointed.
That’s according to the outgoing Ewald Nowotny, who told reporters on Friday that he “would completely exclude” equity purchases as an option for the central bank. “For Europe it is inappropriate”, Nowotny said.
Over the past several days, a procession of ECB hawks have been keen on pushing back against what the market expects will be an effort to over-deliver at the September meeting, at which Mario Draghi is widely expected to deliver an easing package.
Read more: It’s The Hawks Again
On Thursday, it was Klaas Knot weighing in, calling the restart of net asset purchases inappropriate at the current juncture, and on Friday, Sabine Lautenschlaeger echoed those sentiments.
Both policymakers cited the absence of deflation risk, but the data continues to disappoint. The flash read on August CPI, out Friday, was 1%, in line with estimates, but a country mile below target.
Growth has decelerated too, and inflation expectations have fallen.
In a Wednesday note that grabbed a few headlines, SocGen predicted the ECB will embark on an “open-ended” stimulus push, but expressed doubt about whether it will ultimately be enough.
In a list of possible alternatives the ECB might have to consider, SocGen listed equity purchases of €10 billion per month.
“We would see more need for such a programme if stock markets were to become very volatile or fell so much that they constitute a risk to the real economy recovery”, the bank said. The irony, SocGen wrote, is that “the ECB’s efforts to stabilise asset prices in such conditions could mainly be motivated by financial stability, a problem the ECB itself has contributed to by its previous QE programmes”.
Nowotny thinks an equity-buying program is a bad idea.
“The central bank has to know what’s going on in the markets but it should not be following the markets”, he said Friday in Austria. “It should kind of steer the markets, and lead the markets, and there might be a certain danger that we’re too much following”.
He made similar comments in an interview with the Wiener Zeitung newspaper published earlier this week.
“In past years we perhaps followed markets’ expectations too intensively and avoided disappointing them”, Nowotny remarked. “I am of the opinion that central banks should be the decisive institution and must therefore sometimes disappoint markets”.
There are no shortage of critics who would concur with that assessment.
Of course, it’s an easy thing to say when you’re on your way out the door.
Nowotny’s term as Austrian central bank chief expires on Saturday.
Perhaps they are finally beginning to recognize the feedback loops that ensue with increasingly reckless use of monetary policy. This view would be held irrespective of the very real disappointing growth and inflation data. Perhaps they are finally recognizing the long term ramifications of what’s been done. Whether or not the austerity exists to actually continue to follow through with such idealism remains doubtful, but it would be a welcome reprieve from the horrendous global swamp of liberal imonetary sentiment that exists today.