© Reuters. FILE PHOTO: Isabel Schnabel, member of the German advisory board of economic experts attends the 29th Frankfurt European Banking Congress (EBC) at the Old Opera house in Frankfurt, Germany November 22, 2019. REUTERS/Ralph Orlowski/
FRANKFURT (Reuters) -Two European Central Bank officials made the case on Wednesday for ending the ECB’s bond buying scheme as high inflation in the euro zone lessens the case for adding stimulus to the economy.
ECB board member Isabel Schnabel and French central bank governor Francois Villeroy de Galhau were positioning ahead of a meeting on March 10, when rate setters will decide on the future of their money printing scheme amid unusually brisk price growth.
Both Schnabel and Villeroy were open to winding down the Asset Purchase Programme, which is a precondition set by the ECB for raising its interest rates.
“There is now much less reason to continue pressing the gas pedal while increasing our asset stock, as inflation is converging towards our 2% target ‘from above’,” Villeroy said in a speech at the London School of Economics, adding the scheme could end in the third quarter of the year.
He was echoed by Schnabel who told the Financial Times she saw “an argument for ending net asset purchases” because their benefits “may not justify the additional costs.”
Inflation hit a record 5.1% in January and the European Commission expects it come in at 3.5% this year before falling to 1.7% in 2023.
The APP is currently open ended and set to run at least until October. The ECB has said it would end it “shortly before” raising its interest rates.
But Villeroy, a centrist on the ECB’s Governing Council, said the ECB could take out “shortly” from its policy guidance to keep its options open at a time of great uncertainty.
He added two of the three conditions set by the ECB for a rate hike had been met as headline and core inflation were above or around 2%.
The third hurdle – that inflation forecasts stabilise at target – might be overcome “in the next quarters”, Villeroy predicted.
Schnabel, a policy hawk, weighed in by saying core inflation would have been at 2% already in the third quarter of last year if the cost of owning a home had been factored in – a hot topic in countries where real estate prices are booming such as her native Germany.
Investors price in rate increases worth 50 basis points to the ECB’s deposit rate by December, taking it back to zero after eight years in negative territory. The ECB last raised rates in 2011.
ECB’s Schnabel, Villeroy eye end of stimulus scheme
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