ECB policy on path to normalization amid higher inflation: Villeroy – Metro US

ECB policy on path to normalization amid higher inflation: Villeroy

ECB policy on path to normalization amid higher inflation: Villeroy

BUENOS AIRES (Reuters) – Three European Central Bank policymakers struck an optimistic tone on the outlook for euro zone inflation on Sunday despite stubbornly slow price growth so far this year.

The broadly positive picture painted by Francois Villeroy de Galhau, Klaas Knot and Jens Weidmann was likely to cement market expectations for the ECB to wind down its 2.55 trillion euro bond buys this year and start raising interest rates in 2019.

“We are making progress on the inflation front… although a bit slower than we had expected,” Villeroy de Galhau, the governor of France’s central bank, said before attending a G20 summit in Buenos Aires.

“Our policy is on a path to normalization,” Villeroy added, stressing this process would be gradual.

Euro zone consumer prices grew by a slower-than-expected 1.1 percent last month because of a fall in unprocessed food prices and reduced energy inflation, data from the European Union’s statistics office Eurostat showed last week.

Price growth is not expected to hit the ECB’s target of just under 2 percent until 2020, according to the bank’s latest quarterly estimates, and has been lagging it since 2013.

Yet Knot emphasized the ECB’s forecasts have been roughly stable for several quarters, which he sees as evidence of a durable recovery in price growth.

“Inflation has been fairly stable so that provides me with a high degree of confidence that actually inflation will pick up and will at some point approach the definition of price stability,” Knot, a policy hawk who heads the Dutch central bank, said in Buenos Aires.

Fellow hawk Jens Weidmann reaffirmed his call for “a rapid end” of the quantitative easing scheme.

“I personally think that the good economic developments and the inflation forecast would allow a rapid end to the bond purchases,” Weidmann, who is expected to be Germany’s candidate to take over as ECB President when Mario Draghi’s term ends late next year, told newspaper Neue Osnabruecker Zeitung.

(Reporting By Francesco Canepa; Editing by Andrea Ricci)