European Central Bank Governing Council member Ewald Nowotny warned on Monday that inflation is expected to continue to fall in the eurozone in the first quarter of 2015 amid a prolonged slowdown in economic growth.
"For the first quarter of 2015 we must expect falling inflation rates with a large probability," said Nowotny.
Inflation is thus moving into "a very sensitive area," Mr. Nowotny added.
He told a conference in Frankfurt that, "We see a massive weakening in the euro zone economy” and that at least for the short term, the common-currency area was the weak spot of the world economy.
He added, “The balance sheet of the ECB should reach the levels at the start of 2012, a level which is around 1 trillion euros higher than it is now.”
Turning his focus on ECB asset purchases, he said that the centre of discussion on would be on buying sovereign bonds, and the pros and cons of this would be debated.
ECB policy makers are looking at what can be done to prevent falling prices from adversely impacting the eurozone. Recent official data showed that inflation was only 0.3% in the eurozone in November, nowhere near the central bank’s target of 2 percent.
Last week Mr. Draghi said, “Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council remains unanimous in its commitment to using additional unconventional instruments within its mandate”.
Mr. Nowotny also said that in general central banks have the tools to beat inflation, but that fighting deflation was not easy.
He further pointed out that the weakening of the euro currency is not an objective of ECB, "It is not that the ECB has the concrete objective of weakening the euro," and described this as a side effect of monetary policy.
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