May 23, 2018 / 10:22 AM / 5 months ago

ECB can still end bond buys this year: Coeure, Makuch

FRANKFURT/BRATISLAVA (Reuters) - The European Central Bank can still end its bond buying program later this year, two policymakers said on Wednesday, even as fresh data cast further doubt on the health of the euro zone economy.

FILE PHOTO: Benoit Coeure, board member of the European Central Bank (ECB), is photographed during an interview with Reuters journalists at the ECB headquarters in Frankfurt, Germany, May 17, 2017. Picture taken May 17, 2017. REUTERS/Kai Pfaffenbach

With asset buys set to expire at the end of September, policymakers are struggling to understand the source of the unexpected economic slowdown and debate whether the ECB should change course as growth is now likely to undershoot its projections.

But ECB board member Benoit Coeure and Slovak central bank chief Jozef Makuch both argued that the case for ending the 2.55 trillion euro scheme, credited with reviving growth, remained solid.

“At the end of last year, I said that I didn’t expect that our asset-purchase program would need to be extended again. I see no reason to change my view,” Coeure told the German newspaper Die Zeit.

“We expect the economic expansion to continue, and we are increasingly confident that inflation will rise towards our aim of below, but close to, 2 percent,” he said.

Euro zone economic growth slowed more sharply than expected this month, a key business survey showed which, along with weaker inflation, has intensified concerns there will be no return to the bloc’s recent boom times.

But policymakers have argued that exceptional growth rates at the start of the year were never going to be sustained and even if the slowdown came earlier than expected, there is no drama.

A surge in oil prices along with a the euro’s weakness against the dollar could also add to inflation, potentially helping the ECB reach its inflation goal after years of misses.

Makuch said the ECB’s bond purchases have worked and while they have not yet lifted inflation back to target, he expected the bank to get there by 2020-2021.

“The problem now is not economy, it’s politics, global steps, global problems such as steps in the USA, election in Italy and so on,” Makuch told journalists in Bratislava.

“The question is how we react. Economic risks have been solved and they were replaced by global risks that are harder to solve,” he added.

The ECB will next meet on June 14 but is not expected to decide on the future of the bond purchases until its July 26 meeting, policymakers said earlier.

Coeure added that it was not yet decided how bond buys would end, referring to the debate on whether it should be wound down over several months or stopped in one go.

When asked about the incoming Italian government’s spending plans, Coeure said it was too early to comment on a program that is not yet fully defined, though he noted that fiscal rules applied to Italy as others.

“It’s too early to comment on plans we don’t know,” Coeure said. “On fiscal policy in general, the ECB’s view is well known: Europe has fiscal rules and they should be respected.”

The incoming Italian government has proposed big spending increases, setting up a potential clash with Brussels. The increases would probably exceed its deficit cap and swell debt, the second-biggest in the euro zone.

Reporting by Balazs Koranyi and Tatiana Jancarikova; Editing by Larry King and Toby Chopra

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