Act sooner, not later on monetary policy: ECB's Nowotny

VIENNA (Reuters) - The European Central Bank should not wait too long to take action to spur growth and inflation, a senior ECB policymaker said on Monday, adding that steps including bond buying were still being discussed.

European Central Bank (ECB) Governing Council member Ewald Nowotny addresses a news conference in Vienna December 5, 2014. REUTERS/Leonhard Foeger

“I don’t think that ... one should get into monthly data but I think we certainly have prospects for very low inflation rates in the medium term,” Ewald Nowotny, a member of the ECB’s Governing Council, told a panel discussion organized by news outlet, when asked how acute the danger of deflation was.

“Second, you always have to consider that monetary policy has an impact only after a long delay,” he added. “That means if I want to do something I should do it sooner rather than later.”

The ECB is considering a hybrid approach that would see it buy government bonds with risk-sharing across the euro zone and, in a nod to German qualms, separate purchases by national central banks, sources familiar with the discussions have said.

The euro zone’s central bank might announce a sovereign bond buying program as early as Jan. 22 and will certainly have done so by March, according to all but one of 20 euro money market traders polled by Reuters on Monday.

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Asked if the ECB would unveil a 500 billion euro plan next week, Nowotny said he could not answer simply “because we have a lot of things in motion and I think it would not be right to go into great detail now”.

But he said doing nothing would let the ECB’s balance sheet contract as banks repay cheap loans from the central bank, which would have a restrictive impact to be avoided.

Nowotny said it was easier for a central bank to combat inflation than deflation, a sustained fall in prices that may prompt consumers to hold off on purchases in expectations that prices will fall even more.

“We have a danger of inflation (but) I would not say that we are in deflation,” he said after euro zone inflation turned negative in December for the first time since 2009.

“I think we may see that several times in the first quarter but I don’t think we will see negative inflation rates over the course of a year, so this is not deflation in the classic sense.”

Reporting by Michael Shields and Shadia Nasralla; Editing by Noah Barkin and Catherine Evans