March 27, 2018 / 11:10 AM / 8 months ago

ECB's Nowotny sees summer decision to slash bond purchases

FILE PHOTO - European Central Bank (ECB) Governing Council member and OeNB governor Ewald Nowotny addresses a news conference in Vienna, Austria, June 9, 2017. REUTERS/Leonhard Foeger

VIENNA (Reuters) - The European Central Bank will probably decide this summer to slash its bond purchases if things develop as expected, policymaker Ewald Nowotny said on Tuesday, warning that the ECB must not fall “behind the curve”.

The ECB said this month it could still extend its 2.55 trillion euro (£2.2 trillion) bond purchase scheme beyond September if needed. But it skipped a reference to bigger purchases, a signal that it remains on track to end a three-year-old stimulus scheme before the end of 2018.

“This purchase programme runs until the end of September 2018. We will have to decide in summer what happens next,” Nowotny, who as governor of the Austrian National Bank sits on the ECB’s Governing Council, told a news conference.

“And I think that if we have a situation like the one we now expect ... that we will have the possibility to reduce this programme significantly and head towards an end of the programme,” said Nowotny, who has previously called for an end to the asset purchases.

Asked what lessons he drew from the U.S. Federal Reserve’s earlier cutting of bond purchases and raising of interest rates, he said: “One is to act when it is necessary ... to avoid being behind the curve.

“So to wait too long is problematic. But another is to approach steps very cautiously and communicate in time.”

In an interview with state broadcaster ORF later on Tuesday, he said asset purchases should not be extended beyond September.

“This programme runs until the end of September of this year. Then it will have to be decided whether it should be continued. I personally believe that there is no longer any need,” he said.

Reporting by Francois Murphy; Editing by Catherine Evans and Gareth Jones

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