ECB’s Lautenschlaeger Seeks Talks Soon on Gradual QE Exit

  • Executive Board member says bond plan shouldn’t stop abruptly
  • Says preconditions exist for stable rise in consumer prices

European Central Bank policy maker Sabine Lautenschlaeger called on her colleagues to prepare to discuss gradually winding down their bond-buying program.

“All preconditions for a stable rise in inflation exist,” the Executive Board member said at a speech in Hamburg on Tuesday. “I am thus optimistic that we can soon turn to the question of an exit.”

Sabine Lautenschlaeger

Photographer: Martin Leissl/Bloomberg

The remarks threaten to intensify pressure for a withdrawal of quantitative easing, a topic that President Mario Draghi says hasn’t been discussed by the ECB’s Governing Council. Criticism of the central bank has mounted in Germany, which faces elections this year, as the country’s inflation rate accelerates while deposit rates for savers stay near zero.

Even so, Lautenschlaeger warned against reading too much into headline numbers, saying that it’s important to ensure consumer-price growth is sustained.

“Higher inflation is currently being driven mainly by energy prices and they could well have only a temporary effect; what’s more important here is underlying inflation,” she said. “It doesn’t mean waiting until the last doubt about the return of inflation has been dispelled. It is rather a matter of not risking a reaction to a temporary inflation spike – which then might lead to longer, exceptional monetary policy measures.”

Go Slow

The ECB’s 25-member Governing Council decided in December to prolong quantitative easing until at least the end of this year while cutting the monthly pace of purchases to 60 billion euros ($64 billion) from 80 billion euros starting in April. The decision, which wasn’t unanimous, was reaffirmed last week and will take the size of the program to 2.28 trillion euros.

Lautenschlaeger, a German national and one of the most hawkish members of the Governing Council, stressed that her criticism of the ECB’s unconventional policies was “well known” but that once the decision is made to remove the stimulus, it should be done slowly.

“Her views are actually consistent with a very cautious, gradual exit from QE depending on core-inflation prospects, ” said Frederik Ducrozet, senior economist at Banque Pictet & Cie SA in Geneva. “She makes the point that the ECB’s exit strategy needs to be clarified ahead of implementation, but then again I think the majority of the Governing Council will agree, and such discussion might start in the next few months indeed.”

German consumer-price growth surged to 1.7 percent in December and the Bundesbank predicted earlier this week it could reach a “good 2 percent” in January. The latest figures will be published on Monday.

The euro-area rate almost doubled to 1.1 percent last month, though that’s still well below the goal of just under 2 percent. Policy makers have said they want to see a pickup in the core rate, which remains below 1 percent.

“It is unquestionable that monetary policy must be normalized as soon as inflation is visibly headed for stability of just below 2 percent in a sustained fashion,” Bundesbank board member Andreas Dombret said in a speech on Wednesday in Leipzig, Germany. “But in light of current inflation data we will continue to have to live with low interest rates for the foreseeable future.”

Three-quarters of respondents in a Bloomberg survey this month said the ECB’s next major change to its stimulus will be announced no sooner than September. Draghi last week called on Germany for patience, adding that rising inflation will eventually bring higher interest rates for savers.

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