Peter Praet: ECB Policy Normalization Needs More Time
Peter Praet (ECB chief economist) stated, that European Central Bank policy will need to remain accommodating for a long time to come, playing down speculation that the ECB was getting ready to tighten policy more quickly.
Speaking to the European Parliament on Monday, ECB President Mario Draghi predicted a “relatively vigorous” pick-up in underlying inflation, taken by some investors as a signal for a quicker pace in normalizing policy. Praet said the process will be long and slow, because the current inflation path is based on substantial support from the ECB. Also, Praet added the biggest risk to price stability is a “growth accident”. That is, a sudden stop in the growth cycle. And that could come from rising protectionism or emerging markets slowdown.
The euro fell after Praet’s remarks. The single currency jumped the previous day when ECB President Mario Draghi’s stated that “domestic price pressures are strengthening and broadening”. However, Praet talked it down and said there was “nothing new” in Draghi’s comments.
The ECB expects its 2.6 trillion-euro bond purchase scheme to end at the close of this year. Earlier, the ECB also stated, that interest rates will stay at record lows “at least through the summer of 2019.”