The European Central Bank has the option to use quantitative easing-style policies if the threat of deflation emerges and can also boost its bond buying if required, departing ECB Executive Board member Lorenzo Bini Smaghi said on Thursday.
On the use of U.S. and UK-style quantitative easing tactics, Bini Smaghi, who will leave the ECB next week, said in an interview with the Financial Times that the ECB should use such measures if the situation required.
It is appropriate if economic conditions justify it, in particular in countries facing a liquidity trap that may lead to deflation ... this is not currently the case in the euro area because the ECB currently sees no risk of deflation, he said.
If conditions changed and the need for further increased liquidity emerged, I would see no reason why such an instrument tailor made for specific characteristics of the euro area should not be used.
Responding to a question on whether the ECB could increase its purchases of debt-strained euro zone countries' bonds or even set a limit above which it would not allow borrowing costs to rise, he said the ECB was able to scale up its actions if needed.
If the issue is not one of solvency of governments but one of liquidity then the ECB has room for action - one could even say the ECB has a duty of action, Bini Smaghi said.
(Reporting by Marc Jones and Eva Kuehnen)