May 11, 2017 / 12:48 PM / 6 months ago

ECB's Constancio says loose policy for longer is safer bet

FRANKFURT (Reuters) - Maintaining its ultra-loose monetary policy for longer is the safer way for the European Central Bank to avoid an economic relapse, its vice-president said on Thursday, signaling a change of tack was unlikely until the autumn.

FILE PHOTO: European Central Bank Vice President Vitor Constancio speaks during a Reuters Newsmaker event in New York February 19, 2016. REUTERS/Brendan McDermid

Vitor Constancio said the ECB needed to be sure that inflation in the euro zone was steadily heading to its target of almost 2 percent before withdrawing its stimulus policy of aggressive bond purchases and sub-zero interest rates.

“Loose for longer is less risky than a premature withdrawal of stimulus,” Constancio told Reuters on the sidelines of an ECB conference. “We need to be sure about the sustainability of the path towards inflation near to our goal.”

The euro EUR= extended losses after Constancio's comments.

He echoed recent comments by ECB President Mario Draghi and chief economist Peter Praet, signaling the Executive Board’s doves were closing ranks in the face of growing calls from Germany to wind down the bank’s 2.3 trillion euros bond-buying program.

With the ECB committed to buying 60 billion euros worth of bonds every month until December and to keeping rates at ultra-low levels until well after that, Constancio said a decision about what to do next would only come in the autumn.

This lengthens the odds on a move at the ECB’s next meeting in June.

“We are explicitly committed to our policy until December, so this of course means automatically that in the fall we will have to decide what we will do next,” Constancio said. “By then we will have more information.”

The euro zone’s economy has been on its best run for a decade and inflation is comfortably above 1 percent, fuelling calls for a gradual tightening from hawks such as German policymakers Jens Weidmann and Sabine Lautenschlaeger.

But Constancio spelt out that the ECB needed to see an increase in core euro zone inflation, which strips out more volatile energy and food prices, and higher wage growth.

“We recognize that tail risks regarding growth have diminished,” Constancio said. “Regarding inflation we have to be sure that sustainability and domestic drivers of inflation are there to support our medium term goal.”

Reporting by Francesco Canepa; Editing by Catherine Evans

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