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Financial News: ECB's Praet: Brighter Economic Prospects Signaled Slower P

ECB's Praet: Brighter Economic Prospects Signaled Slower Pace Of Asset Buys

11/06/2017 - 06:27:00 (RTTNews)

(RTTNews) - A strong euro area economy boosted policymakers' confidence that inflation would reach the target, opening up the scope for less bond-buying, European Central Bank Executive Board member Peter Praet said Monday.

On October 26, the ECB said the size of its monthly asset purchases will be halved to EUR 30 billion at the start of next year, but they will continue for nine months.

The bank opted the "lower for longer" style of tapering for a second time this year and many hope this would be the beginning of the end of ultra-easy monetary policy since the 2007-08 global financial crisis.

Praet, who is also the ECB chief economist, said there were three main considerations while deciding to reduce the size of the asset purchase programme, or APP, namely pace, horizon and optionality.

He was speaking at an ECB workshop on money markets and monetary policy in Frankfurt.

Regarding the pace, Praet said the brighter economic prospects have increased the ECB's confidence in the gradual convergence of inflation towards its target of "below, but close to 2 percent".

"This called for a lower pace of purchases," the policymaker said.

Yet, a substantial amount of monetary accommodation continues to be necessary to secure the gradual convergence of inflation towards the ECB's aim, Praet stressed.

Monetary policy needs to be persistent and patient for underlying inflation pressures to gradually build up, he reiterated.

"This speaks in favor of a sufficiently long horizon of additional net purchases," Praet said.

"The longer horizon also anchors short-term interest rate expectations for a longer period, thereby reinforcing the Governing Council's forward guidance on policy rates."

Retaining the option to re-calibrate the APP if warranted is consistent with the forward guidance on the APP, Praet added.

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