MANNHEIM, Germany (Reuters) - Expectations the European Central Bank will raise interest rates toward the middle of next year remain realistic, because worries about an end of the euro zone’s economic expansion are overblown, Germany’s man on the ECB’s policy-making body said.
Investors have been wondering whether weaker growth and inflation in the euro zone this year would test the ECB’s resolve in dialing back its aggressive stimulus measures.
But Jens Weidmann, a policy hawk who has long criticized the ECB’s ultra-easy policy, reaffirmed his call for gradually closing the money taps. The 1.7 percent inflation expected in 2020 was in line with the ECB’s target, he said.
“Some observers already see evidence of an approaching end to the upswing in the recent economic slowdown,” he told an audience in Mannheim, Germany. “However, I think such worries are exaggerated.”
Echoing recent speeches, Weidmann backed expectations for the ECB to end its 2.55 trillion-euro ($3.05 trillion) money-printing program this year and raise rates for the first time since 2011 toward the middle of next year.
He added the Federal Reserve experience in spelling out what steps it would take and in what order, was “very helpful” for the ECB.
The Fed said it would first begin raising rates and then start selling down the assets it had bought in its stimulus program - an order that financial analysts expect the ECB to follow.
“The (ECB’s) Governing Council has so far seen no reason to correct that expectation but it has not committed to it,” Weidmann said.
He cautioned, however, that the ECB would not need to wait more than a year between the end of its bond purchases and its first rate hike - as the Fed did - because economic conditions are better in the euro zone.
($1 = 0.8354 euros)
Reporting by Frank Siebelt; Writing by Francesco Canepa in Mannheim; editing by Larry King