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Nowotny urges ECB to speed pace of policy normalization

ZURICH (Reuters) - The European Central Bank should speed up its exit from “crisis-mode” monetary policy, ECB policymaker Ewald Nowotny said on Sunday, reiterating his hawkish line about the timing of potential rate hikes.

Austria's National Bank, OeNB, Governor Ewald Nowotny speaks during an economics conference in Linz, Austria, July 5, 2018. REUTERS/Lisi Niesner

The ECB is due to end its money-printing program at the end of this year after pumping 2.6 trillion euros ($3.05 trillion) into the bond market and has hinted at a rate hike late next year if euro zone inflation accelerates gently.

Nowotny, governor of Austria’s central bank, questioned the wisdom of waiting nearly a year before adjusting borrowing costs.

“We are in a really very good economic situation ...I think the normalization should perhaps take place somewhat more quickly,” he told Austrian broadcaster ORF in an interview.

Nowotny had already staked out a tough policy line in an interview with Reuters in April that drew a rare comment from the ECB distancing itself from his remarks.

On Sunday he did not elaborate on his preferred timetable for action, but said he would welcome moving the ECB’s deposit rate toward -0.2 percent from -0.4 percent now.

The debate at ECB’s policy-setting governing council centered on how long to wait on raising rates to ensure that the ECB’s core mandate of price stability was fully assured, he said, adding he fell into the more optimistic camp.

“I’m not entirely alone in my opinion but it is still an open discussion,” he said.

Clouds are forming on the horizon, with emerging economies feeling the squeeze of higher U.S. interest rates and trade frictions between Washington and Beijing and China weighing on growth.

Nowotny said U.S. President Donald Trump’s view of trade as a zero-sum game was false but played down the impact of the dispute. “I see no threat for Europe here,” he said.

On other topics, Nowotny said he was worried about the lofty valuation of stock markets a decade after the financial crisis that shook the world, calling high price-earnings ratios “a rather dangerous development.”

The ECB was keeping a close eye on Britain’s potentially messy divorce from the European Union and monitoring political developments in Rome, he said, adding that Italy’s basic problem was economic stagnation, with growth of just 1 percent forecast next year.

reporting by Michael Shields; editing by John Stonestreet