ECB's chief economist calls for 'steady hand' on easy policy

ECB's chief economist calls for 'steady hand' on easy policy

Stoyan Nenov

Peter Praet's words strike a cautious note as the ECB prepares to decide whether and how to wind down its 2.3 trillion euros stimulus programme, aimed at boosting inflation in the euro zone.

"The baseline scenario for inflation going forward remains crucially contingent on very easy financing conditions which, to a large extent, depend on the current accommodative monetary policy stance," Praet said at an event in Frankfurt

"Therefore, maintaining a steady hand continues to be critical to fostering a durable convergence of inflation towards our monetary policy objective."

Sources told Reuters that ECB policymakers agreed at last week's meeting on reducing the amount of bonds the ECB buys each month from next year, with a decision likely to come in October.

But policymakers also agreed that, even if stimulus is curbed, easy monetary policy will continue for a long time and normalisation would be gradual, the sources said.

Indeed Praet cautioned inflation remained volatile and expectations for future price increases had yet to align with the ECB's target of just under 2 percent despite a positive outlook for economic growth.

"Measured inflation rates are exceedingly volatile and metrics of underlying price pressures remain anaemic," Praet said in the speech. "The entire distribution of inflation expectations still needs to shift a fair distance to the right."

Praet's comments pitch him against fellow ECB director Sabine Lautenschlaeger, a prominent German hawk who said in comments published on Monday that conditions were in place for inflation to "move steadily towards" the ECB's goal.

(Reporting By Francesco Canepa; Editing by Toby Chopra)

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