The European Central Bank might decide as early as the first quarter of next year whether to begin buying sovereign bonds, the bank's vice president said today.
Vitor Constancio said the ECB could better gauge then whether sovereign bond purchases - quantitative easing - are needed to provide enough stimulus to support the euro zone economy and stave off deflation.
The ECB has already begun buying covered bonds and bundled loans known as asset-backed securities.
It wants to increase the size of its balance sheet to the levels of early 2012 - around €1 trillion higher than it is today.
"We have, of course, to closely monitor if the pace of its evolution is in line with that expectation," Constancio said.
"If not, we will have to consider buying other assets, including sovereign bonds in the secondary market, the bulkier and more liquid market of securities available," he said.
ECB President Mario Draghi had already opened the door to buying sovereign bonds, when he said last Friday the bank could "broaden even more the channels through which we intervene".
But Constancio's comments are the clearest indication yet from an ECB policymaker on the timing of any quantitative easing, which financial markets see as the ECB's best shot at stimulating the flagging economy.
"It would be a pure monetary policy decision, buying accordingly to our capital key, within our mandate and our legal competence," he said.
The reference to the 'capital key' means the ECB would buy government bonds broadly in proportion to the size of the euro zone's 18 economies.
Other major central banks, including the US Federal Reserve, have already used QE programmes, but the concept is highly controversial in the euro zone.
Germany's Bundesbank resists the idea. Bundesbank chief Jens Weidmann has argued that QE would take the ECB close to monetary financing of governments, and that would risk the ECB being driven by fiscal policy.
Some critics also question whether buying the bonds, which would push down yields, would be helpful since borrowing costs are already low.
Constancio dismissed that argument today. "The transmission goes well beyond the direct effect on the yields of the purchased securities," he said.
Euro zone inflation is running at 0.4% - far belowthe ECB's target of just under 2% - and Constancio said it "threatens to continue on the low side for some time to come."
"The environment of low nominal growth now prevailing creates serious risks to the social and economic fabric of the euro area," he added.