Euro area economy on right track: Vasle

Bloomberg

The euro-area economy remains on track with European Central Bank projections that foresee an upturn later this year, policy maker Bostjan Vasle said.
The ECB is gearing up for a meeting in Lithuania in two weeks that will include updates to its forecasts and discussions over how generous to make a new round of bank loans known as TLTROs. Its previous projections in March were followed by sometimes-conflicting economic reports showing troubled manufacturing, relatively resilient services and stubbornly low inflation.
“I’m quite confident that the economy is on the right track, that what’s happening is in line with what we’re expecting,” the Slovenian governor said in an interview in his office in Ljubljana. “We have sufficient room to calibrate our monetary policy instruments if the situation were to deteriorate, but at this stage the economy is strong enough.”
An account of the ECB’s April meeting showed some policy makers losing confidence in the likelihood of a rebound. Incoming data will be key in pricing a new round of longer-term bank loans due in September, with some of Vasle’s colleagues in favor of using that tool to
adjust the monetary-policy stance. Others think it should serve primarily as a funding backstop for banks when uncertainty is elevated.
The 49-year-old, who does long-distance trail running in his leisure time, was noncommittal on how the loans should be priced, saying “the parameters will be dependent on the economic outlook.”
The bank loans are one of several tools the ECB has drawn on in the last decade to support the economy.
One of its primary — and most controversial — instruments is the negative deposit rate, effectively a tax on lenders who keep excess
deposits at the ECB.
Banks have said that hurts profitability, as they can’t pass the cost onto their retail customers easily, and ECB President Mario Draghi has promised to review whether that’s impairing the transmission of monetary stimulus by curtailing lending.
Still, Governing Council members have shown a lack of enthusiasm for tweaks such as tiering — exempting some deposits from the charge — and Vasle takes a similar stance.
“Negative rates have an overall positive impact on the financial sector and the real economy,” he said. “But obviously there are some side effects which we are aware of.”
Vasle took over as head of the Slovenian central bank in January and is one of several new governors and Executive Board members joining this year from countries including Belgium, Cyprus, Slovakia and Ireland. He succeeded Bostjan Jazbec, who was frequently attacked by politicians while in office, and has already become embroiled in a dispute with
the government.
In the interview, he was clear as to where the biggest downside for the euro-area economy comes from — outside the bloc.
“Imposed trade barriers and those under discussion are the biggest threat to the global economy, especially those parts that are more open to trade, and Europe is such a place,” he said. “It’s the biggest risk for Slovenia and the euro-zone economy.”