Fresh signs point to possible European Central Bank stimulus plan

The European Central Bank appears ever more certain to take aggressive action to combat low inflation in the euro zone after the German Bundesbank signaled it was open to unprecedented measures as a way to stimulate growth.

Further reinforcing expectations of action, a top E.C.B. official argued in Berlin on Wednesday that — despite a pending legal challenge — the central bank would not be in violation of its mandate if it bought government bonds. The comments by Yves Mersch, a member of the central bank’s executive board, could be interpreted as opening the door wider to large asset purchases as a way to stimulate the economy.

Expectations that the central bank would act, probably in June, were already high after Mario Draghi, the president of the bank, said last week that there was a consensus on its governing council that inflation, at 0.7 percent, was too low.

“The governing council is not resigned to having low inflation for too long a time,” Mr. Draghi said last week at a news conference in Brussels. “The governing council is comfortable with acting next time,” he said, although he added that policy makers wanted to see the latest forecasts from central bank economists before making a final decision.

The Bundesbank would not oppose measures such as further low-cost loans to banks or negative deposit rates if such measures were deemed necessary, according to a person within the bank who was not authorized to be quoted by name. The Bundesbank also would not oppose purchases of packages of bank loans, the person said, which could make it easier for banks to lend money in troubled countries such as Italy or Spain.

The Bundesbank’s views were first reported by The Wall Street Journal and by several German newspapers.

The euro fell on Tuesday after the reports. However, the person at the Bundesbank suggested on Wednesday that currency markets may have overreacted. The Bundesbank has not fundamentally changed its position, said the person, who is familiar with the thinking of Bundesbank policy makers.

The Bundesbank first indicated that it was open to unusual steps to stimulate the economy in March.

Whether Jens Weidmann, the president of the Bundesbank, supports additional E.C.B. action will depend on the latest data on the economic outlook, the person said. Projections for inflation in 2016 will be of particular importance.

The person stressed that Mr. Weidmann was open to discussion about various measures but would not necessarily support all of them and did not view further stimulus as a done deal.

Mr. Weidmann is a vocal member of the European Central Bank’s governing council. He has often split with other members over policy and speaks for a significant number of Germans. His support for stimulus measures would reduce the risk that moves by the E.C.B. to push up inflation would alienate the German public.

However, there was no indication that Mr. Weidmann or the Bundesbank had dropped their opposition to E.C.B. purchases of euro zone government bonds, which they regard as a violation of the E.C.B.'s mandate.

Mr. Mersch, the E.C.B. executive board member, argued the opposite in Berlin on Wednesday, reinforcing expectations of imminent action. In a speech, Mr. Mersch defended the central bank’s promise to buy bonds of troubled countries to keep their borrowing rates under control.

The program, never implemented since its announcement in 2012, has been controversial in Germany and was the subject of a legal challenge in the country’s constitutional court. The German court referred the matter to the European Court of Justice, which is considering it.

The E.C.B.'s mandate “includes the possibility of buying, under the appropriate conditions, government bonds on the secondary market,” Mr. Mersch said, according to a prepared text, “should this be necessary from a monetary policy perspective.”

His comments, while referring to an existing program, could also be seen as leaving open the option for the central bank to make huge purchases of government bonds, the same kind of “quantitative easing” used by the Federal Reserve to stimulate the United States economy.

With the benchmark interest rate already at a record low of 0.25 percent, the E.C.B. has been struggling to find ways to raise inflation that is considered dangerously low.

One option would be a so-called negative deposit rate, in which the E.C.B. would charge banks to park money at the central bank. That measure has only rarely been used by central banks before and never in the euro zone, and there is the risk that it would have unpredictable effects.

One likely result would be a lower value of the euro against the dollar and other major currencies. Euro zone exporters benefit from a weaker currency because it makes their products cheaper in foreign markets.