ECB governors expect friction with governments as end of support looms

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STRBSKE PLESO, Slovakia, Oct 8 (Businesshala) – The European Central Bank should think about an exit from monetary and fiscal support deployed during the coronavirus pandemic, even if it angers governments, three of its policymakers said on Friday.

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Belgium’s central bank governors Pierre Wunsch, Slovakia’s Peter Kazimir and Slovenia’s Boston Wassley were discussing the end of the ECB’s extraordinary stimulus measures, a decision on which is expected in December.

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“Now the name of the game is exit,” Wunsch said during a panel discussion with two of his colleagues at an event in Slovakia.

“And getting out is going to be difficult because it’s going to be less, not more,” he said.

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

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

“We are the best friends of finance ministers at the moment, but it’s not going to last forever,” Kazimir said in the same panel.

Slovenia’s Vasley also said he saw “the potential for further tension between central bankers and governments” when the ECB normalizes its policy.

The ECB is widely expected to close the PEPP in March 2022, but continue its shorter asset purchase program after that date, with debate now focused on how many bonds the ECB should continue to buy and for how long. .

“I’m not in favor of doubling the stakes every time if it doesn’t work out, but I’m in favor of being patient,” Wunsch said.

The ECB said in September that it saw inflation at 2.2% this year, 1.7% the next, and 1.5% in 2023.

With prices likely to rise 3.4% in September, Wunsch said he thought the ECB’s latest forecasts were too low and the central bank should not overemphasize the transitory aspect of the current inflation growth.

“I think inflation is going to be higher than our previous forecast,” the Belgian governor said.

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

He said he thought the ECB would reach its 2% inflation target sooner than expected. Market prices in some prospect of a rate hike in December 2022, even though the ECB’s forecasts indicate a prolonged period of record-low borrowing costs.

“I think the message we should be sending is that hopefully our policy will work and bring inflation down to 2% at some point,” Wunsch said. “I think it’s going to happen faster than it was six months ago.”

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

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