ECB may end bond buys as it moves closer to inflation target

BERLIN, Feb 23 (Reuters) - The European Central Bank may be in position to end bond purchases as euro zone inflation appears to be moving closer to the bank's 2% target, Philip Lane, the bank's chief economist told a Germany newspaper.

With price pressures building, the ECB abandoned this month a pledge not to raise interest rates this year and policymakers are now preparing to curb stimulus, possibly signalling an end to debt buys within months and even hinting at a rate hike late this year or early 2023.

While inflation hit a record high 5.1% last month, the ECB sees this rate falling back below 2% by next year and holding under the target in 2024 as well.

Lane had long maintained that inflation pressures in the medium term are still too weak, so stimulus was still warranted, but Wednesday's comments indicate that his views are evolving.

"The data clearly suggest that we could be moving closer to our medium-term target," Lane told Frankfurter Allgemeine Zeitung.

"If inflation rates are moving towards our target in the medium term, which is now looking more likely ... we will adjust monetary policy, because we would then, for example, no longer need to make asset purchases," he said in the interview published on Wednesday.

In such a scenario, normalisation of monetary policy instead of tightening would "suffice," Lane said.

Lane also repeated that any interest rate increase could only come after bond buys end, pushing back on some suggestions by economists and a policymaker that the sequence could be reversed.

Asset purchases, known as quantitative easing, are now set to run indefinitely but markets expect the ECB to end them in the third quarter, followed by a rate hike in either the third or the fourth quarter.

But Lane also cautioned that the conflict between Russia and Ukraine is a key risk factor as it could impact energy prices, investor confidence, trade and consumption.

"The geopolitical tensions are a very important risk factor right now, for Europe in particular," he said.

Our Standards: The Thomson Reuters Trust Principles.