May 4, 2018 / 8:19 AM / a month ago

ECB caution in removing stimulus is justified: Constancio

FRANKFURT (Reuters) - The European Central Bank is removing stimulus only slowly and weak inflation dynamics justify its caution, Vitor Constancio, the bank’s outgoing vice president said in Malta on Friday.

European Central Bank (ECB) Vice President Vitor Constancio speaks during a news conference following the governing council's interest rate decision at the ECB headquarters in Frankfurt, Germany, April 26, 2018. REUTERS/Kai Pfaffenbach

“The caution is justified by the subdued inflation dynamics since the second half of 2017 and the recent levels of headline inflation,” said Constancio, whose term at the bank expires at the end of the month.

He added that some studies by the bank’s staff show that the euro zone economy continues to have ample spare capacity, even as other models indicate that the output gap is already closed.

Excess spare capacity would indicate that inflation will need even longer to accelerate as the unemployment rate at which wages rise more sharply may be lower than thought.

Reporting by Balazs Koranyi; Editing by Peter Graff

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