November 26, 2018 / 9:51 AM / 13 days ago

Euro zone slowdown not enough for ECB to change course: Draghi

FRANKFURT (Reuters) - The euro zone has lost some growth momentum but this was mostly normal and not enough to derail plans by the European Central Bank to dial back stimulus further, ECB President Mario Draghi and two of his top lieutenants said on Monday.

European Central Bank (ECB) President Mario Draghi speaks at the 28th Frankfurt European Banking Congress (EBC) at the Old Opera house in Frankfurt, Germany November 16, 2018. REUTERS/Ralph Orlowski

Euro zone growth has been disappointing since the summer months, and Germany, the bloc’s biggest economy, even contracted last quarter, raising some concern that the ECB may be cutting support at the worst possible moment.

“A gradual slowdown is normal as expansions mature and growth converges towards its long-run potential,” Draghi told the European Parliament’s committee on economic affairs in Brussels.

“Some of the slowdown may also be temporary,” Draghi added. “In fact, the latest data already show some normalizing of production in the car industry which has been impeded by one-off factors.”

Still, data on Monday showed that German business morale fell by more than expected in November, pointing to weak growth this quarter, even if a rebound was still likely.

But Draghi along with ECB chief economist Peter Praet and board member Sabine Lautenschlaeger all said the case to end the ECB’s 2.6 trillion euro bond purchase scheme remained unchanged as inflationary pressures build and employment is rises.

The ECB is due to decide on ending the bond buys on Dec. 13 but the decision is seen largely a formality as bar to changing this guidance is very high and would require a true shock.

Praet said the fall in crude oil prices — 30 percent since early October — was a positive for the bloc as the euro zone is a net importer and cheaper crude increases disposable incomes.

Praet added that the ECB could in December provide more elaborate guidance on the time-frame for reinvesting cash from maturing bonds.

With fresh purchases ending in December, reinvestments will become the bank’s key tool to influence market prices and setting the time horizon for buys is a way for the ECB to provide support.

The ECB currently guides markets for reinvestments for an “extended period” which markets interpret as two to three years.

“At the following meetings of the Governing Council, we have to explain a little bit what we mean by an extended period of time,” Praet said.

“I cannot tell you about the December meeting but I think you’re right to expect the ECB to clarify what we mean that we expect to reinvest for an extended period of time,” Praet said. “How are we going to clarify this, let’s wait for December.”

Reporting by Balazs Koranyi; Editing by Robin Pomeroy

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