ECB governors expect friction with governments as end of support looms

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STRBSKE PLESO, Slovakia, Oct 8 (Reuters) – The European Central Bank should take into consideration the exit from financial and monetary support deployed throughout the coronavirus pandemic even when that displeases governments, three of its policymakers stated on Friday.

Belgium’s central financial institution governor Pierre Wunsch, Slovakia’s Peter Kazimir and Slovenia’s Bostjan Vasle had been discussing the end of the ECB’s extraordinary stimulus measures, a choice on which is predicted in December.

“Now the name of the game is exit,” Wunsch stated throughout a panel dialogue with his two colleagues at an occasion in Slovakia.

“And the exit is going to be difficult because it’s going to be about less, not more,” he added.

By pumping 1.4 trillion euros into the bond market since March 2020, the ECB’s Pandemic Emergency Purchase Programme (PEPP) has helped governments finance report deficits at ultra-low borrowing prices.

But this bonanza was now nearing its end, the trio stated.

“At the moment we’re the finance ministers’ best friends but that’s not going to last forever,” Kazimir stated on the identical panel.

Slovenia’s Vasle too stated he noticed “potential for further tensions between central bankers and governments” when the ECB normalises its coverage.

The ECB is extensively anticipated to wind down PEPP in March 2022 however proceed its smaller Asset Purchase Programme after that date, with the controversy now focussing on what number of bonds the ECB ought to proceed to purchase and for a way lengthy.

“I’m not in favour of doubling the bet each time if it doesn’t work but I’m favour of being patient,” Wunsch stated.

The ECB stated in September it noticed inflation at 2.2% this 12 months, 1.7% the following and 1.5% in 2023.

With costs more likely to have risen by 3.4% in September, Wunsch stated he thought the ECB’s newest forecasts had been too low and the central financial institution shouldn’t overemphasise the transitory side of the present inflation rise.

“I think inflation is going to be higher than in our last forecast,” the Belgian governor stated.

“But the argument that part of it is going to be temporary in nature is correct. Sometimes I have the impression that we focus too much on that.”

He added he thought the ECB would attain its 2% inflation goal earlier than anticipated. Markets value in some possibilities of a fee hike in December 2022 even when the ECB’s forecasts indicate an extended interval of record-low borrowing prices.

“I think we should convey the message that hopefully our policy is going to work and bring inflation at some point to 2%,” Wunsch stated. “I think it’s going to take place faster than we thought six months ago.”

Reporting by Balazs Koranyi; Writing by Francesco Canepa in Frankfurt; Editing by Alison Williams and Toby Chopra

The skyline with the banking district and the headquarters of the European Central Bank (ECB) are photographed in Frankfurt, Germany, October 4, 2021. REUTERS/Kai Pfaffenbach/File Photo