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ECB Price Outlook Not as Dire as Market Bets, Policy Maker Says

ECB Price Outlook Not as Dire as Market Bets, Policy Maker Says

(Bloomberg) --

The European Central Bank’s outlook for euro-zone inflation is “not bad” and investors have underestimated the institution’s willingness to act if needed, according to policy maker Vitas Vasiliauskas.

Market-based inflation expectations have dipped to near a record low despite ECB President Mario Draghi saying that interest-rate cuts and asset purchases could deployed if needed to fight any further economic weakness.

ECB Price Outlook Not as Dire as Market Bets, Policy Maker Says

The reaction was “definitely hawkish” and “a bit surprising,” Vasiliauskas told Bloomberg in an interview on Friday, a day after the ECB met in Vilnius. “Markets are very important, but we make decisions, not markets. So of course it is good if your forecast is more or less in line with the market expectations, but we know examples that it can be difficult.”

ECB Price Outlook Not as Dire as Market Bets, Policy Maker Says

Vasiliauskas, who heads the Lithuanian central bank, noted that the ECB’s updated projections foresee consumer-price growth improving to 1.6% in 2021, not far below the goal of just under 2%. Policy makers also stuck to their baseline scenario that GDP growth will pick up in the second half of 2019.

“Information is very mixed, and I would say an appropriate approach would be just to wait, because everything is changing very speedily,” he said. “But I wouldn’t be pessimistic.”

He reiterated that the Governing Council didn’t have in-depth discussions on interest-rate cuts and QE. The talks were “more a theoretical discussion about what we can do if needed,” without looking at specific scenarios.

“Personally I thought that the meeting was very dovish, the press conference also,” Vasiliauskas said. “Everyone needs more time in order to understand what was said.”

To contact the reporters on this story: Carolynn Look in Frankfurt at clook4@bloomberg.net;Milda Seputyte in Vilnius at mseputyte@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Brian Swint

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