ECB May Slow Support Further If Inflation Stays High, Knot Says

FRANKFURT (Reuters) – The European Central Bank (ECB) is close to hitting its 2% inflation target and could end stimulus measures faster than expected if prices continue to surprise the upside, Klaas said Knot, one of the members of the institution’s Board of Governors.

The ECB announced two weeks ago a slowdown in exceptional support measures but promised to keep rates low in 2022 and did not rule out relaunching certain emergency measures if necessary.

It has decided to end bond purchases on the markets as part of the Pandemic Contingency Plan next March, but it will temporarily double purchases of the APP device in order to ensure a smooth transition.

“You can say that we are very, very close to ‘mission accomplished’,” Klaas Knot told the German daily Brsen-Zeitung.

“The risks for inflation are clearly on the rise,” he added, however.

Although several conservative ECB leaders opposed the decision to extend certain stimulus measures, Klaas Knot, who has repeatedly criticized the institution’s accommodative policy, said he was “comfortable” with the strategy to reduce gradually buying bonds in 2022.

But he also warned against complacency, arguing that if inflation turns out to be higher than expected, the ECB may need to ease its support measures more quickly.

“If we want a gradual and smooth exit, then it’s even more important that we start early,” said Klaas Knot.

“The last thing you want in such a situation is to go ‘behind the curve’ [tre en retard sur le cycle conomique-NDLR]. Once you’ve fallen behind, it takes a brutal correction, in the form of shock, to get back on top, “he added.

(Report Balazs Koranyi, French version Laetitia Volga, said by Sophie Louet)

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