Coeure stressed rate setters had yet to be convinced that the rebound in inflation was durable and that it would be sustained even once monetary support is withdrawn.

But he added the bank’s future path, which currently foresees bond purchases
until the end of year and rates at current or lower levels until well after that, was “not set in stone”.

“In particular, it will be about the costs and benefits of having the very low and negative deposit facility rate that we have today,” Coeure said. “It’s not set in stone.”

Banks have long complained that the negative rate, effectively a tax on the excess cash they park at the ECB, is squeezing their profits.

Coeure said so far the benefits of this tool outweighed its drawbacks. But he argued that, in the abstract, the deposit rate could be increased if it started to curb bank lending.

“That could be the case if we had strong evidence that the negative Deposit Facility Rate would impose a cost on the banking industry that … could become a hindrance to our monetary policy transmission,” he said.

So far, the ECB has kept the door open to even more rate cuts in its policy message. Financial markets, however, have long stopped expecting any cuts and currently anticipate some chances of a small rate hike next March.

Coeure would not be drawn on whether the reference to rate cuts may be removed, but he stressed the importance of keeping the bank’s guidance “in line with facts”.

“It’s clear that the deflation risk is now off the table and that is also being acknowledged by financial markets,” he said.

“One important consideration is to keep our forward guidance in line with facts.”