Benoît Cœuré: Interview in Rheinische Post Interview with Mr Benoît Cœuré, Member of the Executive Board of the European Central Bank, in Rheinische Post, conducted by Ms Birgit Marschall and Mr Georg Winters and published on 13 February 2016. *  *  *  Share prices are sharply down on the world’s stock markets. Why? There are several compounding factors, each calling for different answers. First, it’s a global phenomenon. Investors are generally anxious about a slowdown in growth worldwide, especially in the emerging markets, and above all in China. Second, there’s great uncertainty about the global effects of the low oil price. Initially, it was thought the low price would be good for global growth, but now some negative effects can be seen, particularly in emerging markets. Third, market participants are questioning how profitable banks are and whether they have successful business models for the future. How affected are Europe’s banks? They are in a much better position today than they were at the height of the debt crisis in 2011 and 2012. Thanks to the banking union they are now much more resilient. They have very significantly built up their capital and liquidity. One challenge they face is their low profitability, which is also related to the current level of economic growth. Also, some banks have a high level of non-performing loans on their books, as a legacy of the crisis.
The dashed red curve represents the new forecast which covers the period from the second quarter of 2007 to the first quarter 2010. It shows the inflation outlook after today's increase in the Libor under the assumption that the level of 2.50% will be kept constant during the forecasting period. For purposes of comparison, the dash-dotted green curve shows the inflation forecast of the March monetary assessment which was based on a Libor of 2.25%. The combined effect of higher oil prices, economic developments that were better than expected and a weaker franc leads to a deterioration in the inflation forecast for the coming months. Today's interest rate rise will stabilise the rate of inflation at a slightly higher level from mid-2008 onwards than that established last March. Inflation will subsequently continue to rise and approach the 2% mark towards the end of the forecasting period. *** In lifting the three-month Libor by 25 basis points today, deterioration in the inflation prospects over the past months will be offset. Any forecast and any decision are obviously fraught with uncertainty and risk. Should economic momentum remain unchanged or should movements in the Swiss franc result in a further relaxation in monetary conditions, further increases in the interest rate are likely in the months ahead. BIS Review 67/2007  3  4  BIS Review 67/2007