Europe’s market turmoil could delay a rise in inflation – Business Insider

11 months ago Comments Off on Europe’s market turmoil could delay a rise in inflation – Business Insider

Benoit Coeure, member of the Executive Board of the European Central Bank (ECB), attends a Lamfalussy Lectures Conference in Budapest, Hungary February 1, 2016. REUTERS/Laszlo BaloghThomson ReutersCoeure, member of the Executive Board of the European Central Bank, attends a Lamfalussy Lectures Conference in Budapest

FRANKFURT (Reuters) – Europe’s financial market turmoil could delay a rise in inflation even further and banks will need to be fixed with forceful action over time, European Central Bank Executive Board member Benoit Coeure told a German newspaper on Saturday.

The euro area inflation outlook is already weighed down by sharply lower oil prices and slowing global growth, and the market volatility is compounding the problem, Coeure told Rheinische Post.

“If that (volatility) continues for too long, it can also increase the risk of a rise in inflation being delayed,” Coeure said.

Euro zone bank shares are down nearly 30 percent since the start of the year on concerns about profitability, potentially increasing the cost of capital for banks and holding back lending. That could reduce the effectiveness of the ECB’s 1.5 trillion asset buying program, its key monetary policy tool.

The ECB is buying assets, mostly government bonds, to boost lending and raise inflation back to its target of nearly 2 percent from around zero after three straight years of misses.

Coeure said banks are facing low profitability and some are struggling with a high level of non-performing loans, a legacy of the Europe’s economic crisis. But they are also more resilient than in the past, thanks to years of capital increases.

“None of these challenges are new: they have been clearly identified, they require forceful action and they will be solved over time,” Coeure said.

Coeure added that it was also up to euro zone governments to enact growth friendly policies, which could then boost output and eventually help boost banking profitability.

“If this does not happen, we will have to keep rates low for a very long time,” he added.

“Our advice to euro area governments is to use the savings gained from the lower cost of debt refinancing in a growth-friendly way to help their citizens,” Coeure added.

He said government should reduce taxes on labor, create more incentives for private investment, or reduce their deficits where required.

 

(Reporting by Balazs Koranyi; Editing by Toby Chopra)

Read the original article on Reuters. Copyright 2016. Follow Reuters on Twitter.

Europe’s market turmoil could delay a rise in inflation – Business Insider

Related Posts

Russia’s Putin lifts ban on charter holidays to Turkey

7 months ago
Russian President Vladimir Putin lifts curbs on Russian tour firms selling holidays in Turkey, as a row over the downing of a Russian jet is settled. BBC News –... Read More

Ice Cube — Tupac's a Hall of Famer! Rock 'n' Roll Be Damned! (VIDEO)

3 months ago
Ice Cube — Tupac's a Hall of Famer! Rock 'n' Roll Be Damned! (VIDEO) Ice Cube isn’t concerned about Tupac getting into the Rock and Roll Hall of Fame, and... Read More

Russia expels US diplomats in tit-for-tat row

6 months ago
Russia expels two US diplomats from Moscow, after the White House ordered two Russian embassy staff from Washington. BBC News – Europe Read More

Clinton: Trump “temperamentally unfit to be President”

7 months ago
Democratic Presidential candidate Hillary Clinton campaigning in Atlantic City said, “Donald Trump is temperamentally unfit to be President of the United States.” Rough Cut (no reporter narration). Reuters Video:... Read More
Real Time Web Analytics