World Economy

ECB Sees Eurozone Slowdown Temporary

ECB Sees Eurozone Slowdown TemporaryECB Sees Eurozone Slowdown Temporary

European Central Bank policymaker Francois Villeroy de Galhau signaled that he expects bond purchases to end this year and an interest-rate hike could follow in 2019, putting him in the camp of officials who see the current eurozone slowdown as temporary.

In an interview in Paris, the French central banker said inflation will resume its acceleration in coming months, with underlying price pressures set to strengthen. Other policymakers speaking the same day highlighted that they are watching to see if the economy can shrug off its weak start to the year.

The ECB could say a rate increase will follow the halting of net asset purchases by “at least some quarters, but not years” he said on Monday in a Bloomberg TV interview with Francine Lacqua. “We will probably give additional guidance for the end of the year for the timing of the rate hike and the contingencies.”

Policymakers have yet to formally discuss the future of their quantitative-easing program. Purchases are currently scheduled to run until at least September, totaling more than €2.5 trillion ($3 trillion), and officials expect interest rates to stay at current record lows until “well past” the end of net buying. Maturing debt will be reinvested.

The euro rose, and was up 0.3% at $1.197 at the end of the day in Paris.

While executive board member Benoit Coeure affirmed the ECB’s commitment on borrowing costs, he also expressed concern that excess liquidity may reduce the impact of any future rate hikes.

“One possible way to overcome this situation, if and when needed, would be to consider expanding access to the liability side of central bank balance sheets to other actors in financial markets,” he said in Geneva.

ECB chief economist Peter Praet opted to repeat a speech from a week earlier at an appearance in London, reiterating that there is “so far no evidence that the moderation in the pace of economic expansion reflects a durable softening in demand.” Nevertheless, he said officials will monitor the incoming data and that there is still a need for an “ample degree” of stimulus.

Olli Rehn, the deputy governor of the Bank of Finland who has been nominated to succeed Governor Erkki Liikanen this year, was slightly more downbeat in a speech in Rome. “Forecasts are always uncertain, and this one is no exception,” he said. “Currently, risks to the medium-term economic outlook seem to be tilted on the downside.”

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