ECB Officials Signal Confidence Inflation Weakness to Pass Soon

European Central Bank policy makers brushed off concerns over recent weakness in economic data, including inflation, saying they’re increasingly optimistic about reaching their goal.

Comments by Executive Board member Yves Mersch and Governing Council member Vitas Vasiliauskas were published Wednesday by Eurofi, which is convening a meeting of financial regulators. An ECB spokesman said Mersch’s article was submitted on March 21. Vasiliauskas’s contribution was sent on March 15, according to his adviser Rima Kaziliuniene. Data has since continued to show economic growth slowing compared with 2017.

“Confidence has recently risen and convergence is being confirmed — partly because the temporary decline in the inflation rate has been weaker than our internal calculations had predicted,” Mersch said. “More resilience will follow eventually. Still, patience and persistence with respect to our monetary policy is required.”

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Yves Mersch

Photographer: Akio Kon/Bloomberg

Vasiliauskas, who heads the Lithuanian central bank, said his confidence has increased that it’s time to phase out the ECB’s bond-buying program.

Read more on why ECB officials aren’t fazed by the slowdown

The published remarks coincide with the start of the ECB’s monetary-policy meeting in Frankfurt, where officials are set to discuss how and when to communicate the next stage in their gradual exit from extraordinary stimulus. They’ll assess the domestic outlook against a backdrop of global risks including the potential for U.S.-led trade conflicts to worsen.

Euro-area inflation slowed to 1.1 percent in February, compared with a medium-term goal of just under 2 percent. March’s figure, released after the articles were submitted to Eurofi, was unexpectedly revised to 1.3 percent from an initial estimate of 1.4 percent.

Slow But Steady

Euro-area price growth has edged lower lately, but is expected to gradually pick up

Source: Eurostat, ECB

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“We have witnessed the strengthening of broad-based growth and steadily declining unemployment, providing conditions for inflation convergence to our objective,” Vasiliauskas said. “This has increased my confidence that it is time to transition from the asset purchase program. However, the closure of the program should not be abrupt.”

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Vitas Vasiliauskas

Photographer: Peter Kollanyi/Bloomberg

Economists don’t expect major changes when the Governing Council issues its policy statement and President Mario Draghi addresses reporters on Thursday. The ECB has said it intends to continue bond purchases until at least September, to keep interest rates at current levels until “well past” the end of the program, and to reinvest maturing assets for an extended period.

Vasiliauskas said the ECB should tackle the question of the size of the balance sheet after normalization. Policy makers intend to “cautiously reduce the balance sheet in favor of financial-market functioning,” he said. “However, the balance sheet might remain larger than it was before the financial crisis.”

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