March 27, 2017 / 2:35 PM / 5 months ago

ECB board members lay out diverging policy views

FILE PHOTO: The headquarters of the European Central Bank (ECB) are illuminated with a giant euro sign at the start of the "Luminale, light and building" event in Frankfurt, Germany, March 12, 2016.Kai Pfaffenbach/File Photo

(Reuters) - Two senior European Central Bank policymakers expressed diverging views on the bank's ultra-loose monetary policy on Monday, laying bare the rift at the top between supporters and critics of the direction the bank has taken under President Mario Draghi.

Peter Praet, the ECB's chief economist and a key ally of Draghi's, argued that the euro zone still needs substantial stimulus.

But his fellow ECB Executive Board member Sabine Lautenschlaeger, a German who tends to side with more conservative rate-setters, said the bank should start making plans for an eventual end to its current extraordinary stimulus.

With inflation rising largely due to higher oil prices and economic growth accelerating, critics of the ECB's ultra-easy monetary policy have been arguing for the need to step off the accelerator or at least start talking about eventually exiting the current policy.

"We should prepare for a change in the policy and as soon as the data is stable and we have a sustainable path towards our objective of price stability, then we are well prepared to do," Lautenschlaeger told CNBC.

An outspoken policy conservative, Lautenschlaeger said that if economic data remain supportive, the ECB could discuss and decide on its next step after June.

Chief economist Peter Praet struck a more dovish tone, warning that the inflation rise could stall or even reverse if the ECB removed stimulus too early.

"We need to look through the recent surge in inflation, which is driven by transient factors that will probably fade before long," Praet said in Madrid.

"Our conclusion that a very substantial degree of monetary accommodation is still needed for underlying inflation pressures to build up and support headline inflation in the medium term remains valid," Praet added.

Still, Praet said he expected the bloc's economic recovery to continue and broaden with improving consumer and business sentiment suggesting that the cyclical recovery is gaining momentum.

The ECB's policy-setting Governing Council next meets on April 27. Its asset buying is set to run until the end of the year, and the bank said it expects rates to stay at their current or lower levels until after the end of the bond purchases.

Reporting by Balazs Koranyi and Andreas Framke; Editing by Hugh Lawson

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