February 26, 2019 / 11:12 AM / 8 months ago

UPDATE 1-ECB's incoming chief economist takes benign view on slowdown

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FRANKFURT, Feb 26 (Reuters) - The European Central Bank’s future chief economist took a relaxed view of Europe’s economic slowdown on Tuesday, playing down its implication for monetary policy.

Irish central bank chief Philip Lane, the sole candidate to replace Peter Praet on the ECB’s board from June, argued that a string on weak figures implied only modest revision in projections, all within the limits of the current policy strategy.

“I think it’s also fair to say that all of this is in the neighbourhood of reasonably small adjustments to the forecasts,” Lane said in a confirmation hearing at the European Parliament’s Committee on Economic and Monetary Affairs in Brussels.

“I think the current strategy can cater to limited downside revisions,” Lane said. “The forward guidance can accommodate revisions to the projections.”

With half of the ECB’s board and over a third of its Governing Council being replaced during 2019, the ECB is undergoing its biggest change in years and Lane, tasked with preparing policy decisions, is a vital part of that.

Considered a dove much like his predecessor, his appointment is unlikely to alter the bank’s course significantly.

The appointment of Mario Draghi’s successor as bank president late in the year is likely to herald a greater shift.

The ECB next meets on March 7 and is all but certain to slash growth and inflation forecasts after growth in Germany, the bloc’s biggest economy, stalled, and Italy went into recession.

But it is not yet expected to change its guidance that rates would stay steady at least through the summer.

“Clearly the market is expecting... the downward revisions in data to mean a slower path of normalisation,” Lane said. “The current strategy can deal with that.”

Adding some optimism to his remarks, he said that employment and wage pressures continued to build, suggesting that inflation will rebound after years of undershooting the ECB’s target.

“We remain confident that the underlying mechanisms that would lead to improving inflation performance over time are still active,” Lane added. (Reporting by Balazs Koranyi; Editing by Kevin Liffey and John Stonestreet)

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