October 9, 2017 / 4:24 PM / a year ago

ECB policy hawk calls for winding down asset buys

STUTTGART (Reuters) - The European Central Bank should reduce its asset buys from next year with the aim of ending them altogether, ECB Executive Board member Sabine Lautenschlaeger said on Monday, just weeks before policymakers decide whether to curb stimulus.

FILE PHOTO - A commuter train passes over a bridge next to the headquarters of the European Central Bank (ECB) in Frankfurt, Germany, October 1, 2017. REUTERS/Kai Pfaffenbach

Advocating one of the most hawkish positions among rate setters, Lautenschlaeger argued that the factors holding down inflation are temporary so even if patience and stimulus were still needed, swelling the ECB’s balance sheet any further is not needed.

“I think we should begin reducing our bond purchases next year,” Lautenschlaeger, who has frequently opposed past stimulus measures, said in Stuttgart. “This should be done gradually, until we are no longer purchasing additional bonds.”

“From my point of view, it is important that we really move towards the exit – step by step, but steadily and in a clear direction,” she said.

The ECB is due to decide on Oct. 26 whether to continue bond purchases next year. Signals coming from policymakers suggest that they will opt for lower volumes but also an extension of the scheme, possibly by six or nine months.

But some policymakers are wary of signalling the programme’s end as inflation will undershoot the ECB’s target of almost 2 percent year years to come.

Still, Lautenschlaeger argued for transparency, warning that unclear signals could lead to unwanted market volatility and turbulence, undoing some of the bank’s work.

She also noted that, given cheap borrowing costs and steady growth, it was only a matter of time before inflation rose back to target, so the ECB could already start planning for an end to unconventional measures.

“As of today, it is clear which sequence the exit will follow. Bond purchases will come to an end, while interest rates will remain low, well past the horizon of net asset purchases. But we still need to decide on a time frame.”

Reporting by Frank Siebelt; Writing by Balazs Koranyi; Editing by Francesco Canepa/Mark Heinrich

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