(Bloomberg Opinion) -- For the best part of a decade, politicians and investors have looked at the European Central Bank as a guiding light through uncertain economic times. They may need to adapt to a new reality. On three important questions for the future of the euro zone, the ECB just cannot make its mind up.
Nevertheless, none of this is an entirely convincing explanation for stubbornly low inflation. There may be structural factors at play, including the impact of globalization and technological change – something the Fed has been looking at. So long as the mystery remains unsolved, central banks may have little choice but to keep pumping money into the economy to meet their inflation targets.
On Wednesday, Draghi hinted that the negative rate idea might need reassessing. “If necessary, we need to reflect on possible measures that can preserve the favorable implications of negative rates for the economy, while mitigating the side effects, if any,” he said. This was pretty non-committal, but suggests a rethink might be on its way. Could the ECB opt for a tiered system, where the negative deposit rate applies only above a certain exemption threshold? In an interview with Bloomberg News, Peter Praet, the bank’s chief economist, said the governing council would need a clear monetary policy case before doing so. Once again, it’s hard for investors to read which way the ECB is going to jump.