December 18, 2018 / 3:27 PM / 5 months ago

ECB's Makuch says future rate rise depends on state of economy

BRATISLAVA (Reuters) - The timing of a future interest rise in the euro zone will depend on the state of the economy, member of the European Central Bank Governing Council Jozef Makuch said on Tuesday.

The ECB’s Governing Council pledged last week to maintain rates at their record low levels at least through next summer. It also agreed to stop new bond purchases after nearly four years, however it would keep its stock of debt stable for a long time.

Asked at a news conference about reaction to a possible economic slowdown, Makuch said such a scenario could create the need to reformulate the ECB’s forward guidance.

“The timing of a future interest rate hike is not just a question of time but a question of the state of the economy,” Makuch, governor of the Slovak central bank, told reporters.

“We will need to watch the state of economy and, in case of (such a slowdown), possibly reformulate the forward guidance.”

Euro zone businesses are ending 2018 in a gloomy mood, expanding their operations at the slowest pace in over four years as new order growth all but dried up, hurt by trade tensions and violent protests in France, a survey showed on Friday.

The ECB has also lowered its growth and inflation projections for next year, forecasting a steady slowdown in the coming years as the effect of the stimulus wanes and growth returns to the currency bloc’s natural potential at about 1.5 percent.

Makuch said he saw risks to growth from international politics, protectionism, the vulnerability of emerging markets, market volatility and fiscal discipline in Italy and France.

However, ECB President Mario Draghi signaled last week both confidence about growth and concern over rising uncertainty, balancing between some policymakers’ calls for more cautious tone on growth risks and more hawkish views.

Representing those is Austria’s Ewald Nowotny who called on Friday for an interest rate hike as soon as possible.

Makuch, who had been considered a swing voter between ECB Draghi and the more conservative German and Austrian policy view on the ECB governing council, said in November he would resign as Slovakia’s central bank chief as of March next year.

He will be replaced by Finance Minister Peter Kazimir, who has often taken a tough line similar to that of Germany on euro zone policies toward countries that fail to meet their fiscal commitments.

Reporting by Tatiana Jancarikova; Writing by Robert Muller; Editing by Alison Williams

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