HELSINKI (Reuters) - Underlying inflation in the euro zone may remain lower than expected even if growth is robust, so the European Central Bank needs to remain patient in removing stimulus, Governing Council member Erkki Liikanen said on Tuesday.
“A gradual tightening of monetary policy will rest on a more solid basis when indications of inflation rates to potentially temporarily exceed two percent become more prominent in inflation expectations,” said Liikanen, the governor of Finland’s central bank.
ECB policymakers are now debating whether to end lavish bond buys later this year even if inflation remains short of the bank’s target of almost 2 percent. Their debate increasingly is focusing on how fast they should normalise policy after years of exceptional accommodation.
“The euro area inflation rate is sustainable when the ECB’s price stability objective can be met even without an exceptionally accommodative monetary policy,” Liikanen said.
Liikanen said that underlying inflation might remain lower than expected, because reducing economic slack may no longer cause inflation to rise as it has in the past. Inflation expectations have remained low and perhaps the economy’s growth potential is greater than earlier thought, he said.
Reporting by Jussi Rosendahl; writing by Balazs Koranyi; editing by Larry King