September 15, 2017 / 9:10 AM / 10 months ago

ECB's Lautenschlaeger says it's time to cut bond purchases

TALLINN (Reuters) - It is time for the European Central Bank to scale back its huge stimulus programme as brisk economic growth in the euro zone and low interest rates will bring inflation back to target, ECB board member Sabine Lautenschlaeger said on Friday.

European Central Bank (ECB) executive board member Sabine Lautenschlaeger attends at a news conference at the ECB in Frankfurt October 26, 2014. REUTERS/Ralph Orlowski

It was the most explicit call so far from an ECB policymaker for the bank’s 2.3 trillion euros money-printing programme to be pared back. The scheme was launched in 2015 to help revive inflation but has been blamed for fuelling bubbles in bonds and property, particularly in richer countries such as Germany.

“The buoyant growth coupled with the monetary accommodation will take us back to an inflation rate which is in line with our goal,” Lautenschlaeger, the most outspoken hawk on the ECB’s board, told the Eurofi symposium in Tallinn.

“There’s little doubt about that. Hence, it is time to take a decision now on scaling back our bond purchases at the beginning of next year.”

She spoke as data showed euro zone wages grew at their fastest rate in two years in the second quarter, at 2 percent year-on-year, although that pace was still below its long-term average.

Inflation in the euro zone has stabilised at just over 1 percent, still far from the ECB’s medium-term target of just under 2 percent, which has been missed for over four years.

Lautenschlaeger acknowledged that inflation was “taking a bit longer than usual to pick up” but said the over 2 trillion euros worth of bonds bought by the ECB and “standard monetary policy measures” provided enough accommodation at this point.

The ECB is expected to announce next month a reduction in bond purchases from January but policymakers have been wary of committing to any decision in public out of fear of spooking investors and pushing up the euro’s exchange rate.

This would make imports cheaper and exports dearer, dragging on inflation and undoing some of the ECB’s stimulus efforts.

Lautenschlaeger conceded communication needed to be careful.

“On the one hand, we must help markets to get an idea of what the exit will look like,” she said. “On the other hand, we mustn’t confuse them with vague or ambiguous ideas.”

Reporting by Balazs Koranyi in Tallinn; Writing by Francesco Canepa in Ljubljana; Editing by Catherine Evans

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