ECB’s Visco says policymakers must counter deflation risk

FILE PHOTO: Ignazio Visco, governor of Bank of Italy, speaks during an event to launch the private finance agenda for the 2020 United Nations Climate Change Conference (COP26) at Guildhall in London, Britain, February 27, 2020. Tolga Akmen/Pool via REUTERS

ROME (Reuters) – European Central Bank Governing Council member Ignazio Visco said on Friday policy makers had to act to head off deflationary risks brought about by the sudden halt to economic activity during the coronavirus crisis.

Visco, who is also governor of the Bank of Italy, said disinflationary pressures could be strong and persistent, threatening economies where already high levels of public debt are growing massively during the crisis.

Presenting the Bank of Italy’s annual report, he said the ECB was ready to use all the instruments available to ensure that all sectors of the economy could benefit from accommodative financing conditions.

“Steps must be taken to counter the significant risk of low inflation and the marked fall in economic activity from translating into a permanent reduction in expected inflation or into the possible resurfacing of the threat of deflation,” he said.

“Also as a result of the high levels of public and private debt in the euro area as a whole, this could trigger a dangerous spiral between the fall in prices and that in aggregate demand.”

Reporting by James Mackenzie, Valentina Za, Stefano Bernabei, Giuseppe Fonte

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