AMSTERDAM/FRANKFURT (Reuters) - The European Central Bank needs to stick to its already laid out policy path, several policymakers argued on Thursday, although a top conservative urged them to leave the door open to a more rapid reduction in stimulus.
Economic growth is gaining momentum and the euro zone may be on its best economic run in a decade. But inflation is still not moving decisively higher, the policymakers argued, hinting at little appetite for now to amend the ECB’s policy stance.
The comments gel with Reuters report on Wednesday that policymakers are wary of making any new change to their policy message after small tweaks this month upset investors and raised the specter of surging borrowing costs for the bloc’s indebted periphery.
With inflation at a four-year high, critics of the ECB, particularly in Germany, have called on the bank to start winding down its unprecedented stimulus measures, including a 2.3 trillion euro asset-buying scheme designed to rekindle growth and inflation.
“We are not yet sufficiently confident that inflation will converge to levels consistent with our aim in a durable manner,” ECB chief economic Peter Praet said, referring to ECB’s 2 percent inflation objective.
Although euro zone inflation was at 2 percent year-on-year in February, core inflation remains low. Early March inflation figures suggest a dip with Spain dipping to 2.1 percent from 3.0 percent and Germany at 1.5 percent from 2.2 percent.
“Inflation dynamics still remain reliant on the very substantial degree of monetary accommodation which prevails,” Praet added.
The ECB next meets on April 27, before the final round of the French presidential election. A potentially contentious run-off could also encourage the bank to act with caution.
Arguing for steady hand, Austrian central bank chief Ewald Nowotny said there was no need to deviate from the already charted course while Finnish central bank governor Erkki Liikanen expressed support for the ECB’s policy path expressed in its so-called forward guidance.
“The strategy for 2017 has largely been set and from my point of view there is no reason to depart from this,” Nowotny said in Vienna.
The asset buys are set to run at least until the end of the year and talks about how and when to wind it down have not yet started.
The sole dissent — and relatively minor — came from Klaas Knot, the Dutch Central bank chief who has opposed many of the ECB’s easing measures. He argued for flexibility, suggesting an earlier end, but only if the economy continues to outperform expectations.
“Only if the economy does even better than we now expect in our estimates could we consider bringing the tapering forward,” Knot said, referring to the ECB’s plans to buy 60 billion euros worth of bonds each month until the end of the year.
Knot, like Liikanen, meanwhile rejected a suggestion by some policymakers that the ECB could change its guidance, which now sees the first rate change only well after the end of the asset buys.
“I think this sequence makes sense, the forward guidance makes sense and I don’t see a need to revisit that now,” Knot said.
“The logic is one of a consistent communication message which is neutral along the yield curve and which prevents giving conflicting views as to the front end and the long end of the yield curve.”
Additional reporting by Andreas Framke in Frankfurt, Francois Murphy in Vienna and Tuomas Forsell in Helsinki Editing by Jeremy Gaunt