By David Mardiste
TALLINN (Reuters) - Quantitative easing would be operationally complex for the European Central Bank, policymaker Ardo Hansson said, casting doubt on whether the bank could implement such a plan to ward off the threat of deflation.
The ECB governing council said earlier this month it was unanimous in its commitment to use unconventional tools - central bank-speak for things like quantitative easing (QE), or printing money to buy assets - to counter a protracted period of low inflation.
Euro zone inflation is now running at 0.5 percent, well below the ECB's target of just under 2.0 percent over the medium term. The central bank wants to avert any drop in inflation expectations that could lead to a prolonged period of so-called "low-flation", or even sink into outright deflation.
But Hansson, who sits on the governing council, expressed concerns about QE, telling Reuters: "I still have questions because it is so operationally complex.
"There are a lot of issues you that have to decide," he said on the sidelines of a news conference in Tallinn. "Which types of assets you would start purchasing? By what types of rules? How you would implement that in a decentralised system where there are 18 different central banks implementing monetary policy? You have to look at legal issues and so on, so I don't think it is so simple."
The ECB also needed to determine whether a QE programme would be effective, Hansson said. He noted that the euro zone financial system - characterised by extensive bank lending - was different from the more market-based U.S. system.
"There are some details that need to be sorted out and more analysis of its effectiveness," he said of QE. "So one has to have an open mind, and I think we are working in the direction of understanding those channels better."
Asked whether the ECB would cut interest rates before embarking on so-called non-standard measures such as QE, Hansson replied: "I don't think you can put them into a pecking order and say you do A before B and B before C.
"The choice of instrument depends on the specific constellation of the various developments," he said. "If you see more of an issue related to liquidity, you might choose certain liquidity related instruments."
Noting that the ECB's main scenario was for inflation to pick up, Hansson said a range of factors could see that come about, "including rather positive expectations among both enterprises and households".
However, he said the ECB must keep an eye on the euro exchange rate to assess whether it poses a risk to the medium-term inflation outlook. The fact that inflation is low means "you probably have some heightened focus", he said. "So I think we have to keep an eye" the exchange rate.
Asked whether he was watching a particular threshold for the euro, he replied: "No."
(Writing by Paul Carrel; Editing by Larry King)