ECB rate hike still possible this year, narrative unchanged: Nowotny

FILE PHOTO: Austria's National Bank, OeNB, Governor Ewald Nowotny speaks during an economics conference in Linz, Austria, July 5, 2018. REUTERS/Lisi Niesner

BRATISLAVA (Reuters) - Euro zone activity is weaker than previously thought but the growth scenario outlined by the European Central Bank in December remains valid and a rate hike this year is still possible, Austrian policymaker Ewald Nowotny said on Friday.

Euro zone indicators from industrial production to sentiment readings have disappointed in recent months and there are fears Germany, the bloc’s biggest economy, may be suffering a recession due to troubles in its vast car manufacturing sector.

“We were aware that there were risks but the basic story (outlined in December) still holds,” Nowotny, known as a hawk on the 25-member governing council, told reporters. “I do not expect major policy changes in the near future.”

When asked if he could still see an interest rate hike this year even though market expectations for a move have been pushed back into 2020, Nowotny said this remained the ECB’s guidance and he could well imagine such a move.

Still, he added that no decision has been made and policymakers would eventually decide based on incoming data.

The ECB will next meet on Jan. 24 and while no big policy changes are expected, investors think the bank will tweak its policy message to acknowledge weaker growth.

Nowotny, one of the longest serving governing council members, added that even a decision on a new long-term bank lending facility was not urgent.

“At the January meeting we will not have a lot of new data. As we are data-based, I do not see that at the January meeting there will be major changes,” he added.

Reporting by Balazs Koranyi and Tatiana Jancarikova; Editing by Francesco Canepa and Andrew Cawthorne