July 6, 2017 / 10:18 AM / 3 months ago

ECB's Praet calls for a steady hand with policy

FRANKFURT (Reuters) - The European Central Bank needs to be patient and maintain a steady hand in policy as inflation is still far below its target, its chief economist, Peter Praet, said on Thursday.

FILE PHOTO - European Central Bank Executive Board Member, Peter Praet, speaks during a conference in Sofia, Bulgaria May 24, 2017. REUTERS/Stoyan Nenov

His comments may dampen expectations for imminent policy tweaks.

Accelerating growth will increase returns on investments, making borrowing conditions more attractive, essentially providing further accommodation to the economy, Praet said.

But inflation has yet to rise convincingly toward the ECB’s target, measured inflation remains exceedingly volatile and price growth expectations are still too low, he said.

“We need patience and persistence,” Praet said, repeating ECB President Mario Draghi’s message from last week. “Therefore, maintaining a steady hand continues to be critical to fostering a durable convergence of inflation toward our monetary policy aim.”

Draghi stirred markets last week when he appeared to open the door to tweaks in policy, fuelling speculation that policymakers could decide as soon as September to reduce asset buys from next year.

He argued that accelerating growth will in itself provide support -- a message Praet repeated on Thursday -- so the ECB could tighten policy somewhat to keep the broad level of financial accommodation unchanged.

Sources then suggested the market had over-interpreted his comments.

Praet, considered a top dove on the rate-setting Governing Council, argued that even the relatively muted baseline projection for inflation in the coming years depends on the ECB’s support.

“We need to be persistent, because the baseline scenario for inflation going forward remains crucially contingent on very easy financing conditions which, to a large extent, depend on the current accommodative monetary policy stance.”

The ECB is keeping rates in negative territory and buys 60 billion euros worth of debt each month, all in the hope of keeping borrowing costs low to fuel investment and eventually growth.

The bank’s next policy meeting will be on July 20.

Reporting by Balazs Koranyi; editing by Jeremy Gaunt

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