European Central Bank warns for tighter policy

The European Central Bank (ECB) should be ready to change its monetary policy as inflation data start to meet targets, a member of the bank’s executive board told CNBC on Monday.

Sabine Lautenschläger, member of the ECB’s executive board, said the current loose monetary stance is necessary given current economic data, but added that she’s hopeful that the numbers will improve by the next scheduled meeting in June.

“We should prepare for a change in the policy and as soon as the data is stable and we have a sustainable path towards our objective of price stability then we are well prepared to do (it),” Lautenschläger said.

Inflation, which is a key factor determining ECB policy, has improved over the last few months but core figures are still below the bank’s target.

However, the latest headline inflation figures – which is a measure of total inflation and includes commodities like food – for the euro zone reached 2 percent in February, mainly driven by energy prices. The bank’s target is to keep inflation close but below the 2 percent threshold.

Nonetheless, in his last address to the media, ECB President Mario Draghi said that underlying inflationary pressures across the region are still too weak and thus it is too early to dial back on monetary stimulus.

Meanwhile, plans from the new US administration to deregulate the banking system are another issue the ECB is facing. At the moment, there is no clarity from President Donald Trump on how far the deregulation will go, but the change in administration has already stalled developments in key international regulations, such as Basel III – a comprehensive set of reform measures on banking supervision.

Lautenschläger sai that the US is free to change national regulation, but problems might arise if it affects global rules.

“If they want to change a national rule which is not unpopular for the global framework then we have no interconnectedness there,” she said.

One of the new administration’s plans is to scrap Dodd-Frank, a regulation introduced after the 2008 financial crisis. However, Lautenschläger said that such regulation is also international.

“Some its national, some its global, so I’m very sorry,” she said. Lautenschläger added she expects more clarity on the US’s stance on Basel III rules in the “coming weeks.”

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