ECB's Villeroy Sees Unity on Slow QE Exit That Trade Could Stall

(Bloomberg) -- European Central Bank Governing Council member Francois Villeroy de Galhau said policy makers are broadly united in supporting a gradual exit from extraordinary stimulus even as trade tensions or a stronger euro could force a delay.

“We are now following our central course of gradual normalization, and there is at present a high convergence in our views within the Governing Council,” Villeroy, who also heads the Bank of France, said in a speech in New York on Wednesday. “Whether our net asset purchases stop in September or December is not a deep existential question.”

Policy makers still have to start debating the future path of asset purchases, which are currently scheduled to end in September. No major decisions are expected at their next meeting on April 26. ECB President Mario Draghi has hinted that bond buying won’t stop suddenly and investors forecast a short tapering until the end of the year.

Since the ECB last set policy, economic momentum has slowed amid heightened risks for global trade. Villeroy de Galhau suggested that could delay any ECB decisions.

“We are predictable, but we are not pre-committed -- what could slow down this course of gradual normalization?” he pondered. “We should pay close attention to a possible cumulative risks scenario, the likelihood of which has increased recently: an adverse loop of protectionist threats, unfavorable exchange-rate movements, and abrupt financial-markets corrections.”

Euro-area inflation accelerated less than initially estimated in March, with consumer prices rising just 1.3 percent from a year earlier, compared to an initial reading of 1.4 percent. Core inflation, which strips out volatile components such as food and fuel, held at 1 percent for a third month, while Bloomberg Economics’s supercore measure -- which tracks domestically generated pressure -- reached 1.2 percent, the highest level in four years.

Villeroy de Galhau expressed confidence that inflation will eventually pick up despite somewhat weaker economic growth but stressed that monetary policy will remain easy for an extended period.

“The latest business surveys and economic data point toward some moderation of late,” he said. “However, the underlying momentum remains solid and broad-based, and we interpret recent data as reflecting a temporary pull-back from the very strong and above-trend pace recorded in the second half of last year. It does not alter the inflation outlook over the medium term horizon that is relevant for our monetary policy.”

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