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ECB could 'soon' exit monetary stimulus: board member

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The European Central Bank should soon be in a position to reduce its extraordinary monetary support to the eurozone economy, board member Sabine Lautenschlaeger has said.

[FRANKFURT] The European Central Bank should soon be in a position to reduce its extraordinary monetary support to the eurozone economy, board member Sabine Lautenschlaeger has said.

"I am optimistic that we can soon turn to the question of an exit," the German economist said in a speech in Hamburg late Tuesday.

With rising consumer confidence and unemployment at a seven-year low, "the situation seems to be improving in the euro area," she noted.

"A broad-based recovery is under way," Ms Lautenschlaeger went on. "At the same time, inflation in the euro area rose signficantly" in December.

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The ECB introduced unprecedented ultra-loose monetary policy in the wake of the financial crisis, hoping to drive economic growth and encourage inflation towards its objective of just below 2.0 per cent.

Interest rates are at historic lows, while the bank buys tens of billions of euros of government and corporate bonds each month and offers banks cheap loans in a bid to pump cash into the economy via the financial system.

Calls for an end to the ECB's extraordinary measures have grown after monthly data showed that inflation nearly doubled to reach 1.1 per cent across the eurozone in December - and 1.7 per cent in its largest economy, Germany.

ECB president Mario Draghi countered at a press conference last week that the December rise in inflation was mostly driven by volatile energy prices, and that underlying inflation remains weak.

Mr Draghi said the time would come when the bank would start scaling back its stimulus measures, "but we are not there".

Nevertheless, Ms Lautenschlaeger said, "all preconditions for a stable rise in inflation exist." "We need to be ready to act when the time comes," she went on. "It's important to stop taking the medicine as soon as possible, but not too early either. Otherwise, we risk having a relapse."

AFP

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