ECB officials signal confidence inflation weakness to pass soon

[FRANKFURT] European Central Bank policy makers brushed off concerns over recent weakness in economic data, including inflation, saying they're increasingly optimistic about reaching their goal.

"Confidence has recently risen and convergence is being confirmed - partly because the temporary decline in the inflation rate has been weaker than our internal calculations had predicted," Executive Board member Yves Mersch said on the website of Eurofi, which is convening a meeting of financial regulators. "More resilience will follow eventually. Still, patience and persistence with respect to our monetary policy is required." His colleague on the Governing Council, Lithuania's Vitas Vasiliauskas, said on the website his confidence has increased that it's time to phase out the ECB's bond-buying program.

The comments coincide with the start of an ECB monetary-policy meeting in Frankfurt, where officials are set to discuss how and when to communicate the next stage in their gradual exit from extraordinary stimulus. They'll get the chance to assess a spate of data that has shown output and sentiment in the currency bloc faltering, just as the global economy faces the risk of a US-led trade conflict.

The remarks suggest ECB officials are relatively sanguine about the outlook. Euro-area inflation slowed to 1.1 per cent in February, compared with a medium-term goal of just under 2 per cent, and March's figure was unexpectedly revised to 1.3 per cent from an initial estimate of 1.4 per cent.

"We have witnessed the strengthening of broad-based growth and steadily declining unemployment, providing conditions for inflation convergence to our objective," Mr Vasiliauskas said. "This has increased my confidence that it is time to transition from the asset purchase program. However, the closure of the program should not be abrupt." Economists don't expect major changes when the Governing Council issues its policy statement and President Mario Draghi addresses reporters on Thursday. The ECB has said it intends to continue bond purchases until at least September, to keep interest rates at current levels until "well past" the end of the program, and to reinvest maturing assets for an extended period.

Mr Vasiliauskas said the ECB should tackle the question of the size of the balance sheet after normalization. Policy makers intend to "cautiously reduce the balance sheet in favor of financial-market functioning," he said. "However, the balance sheet might remain larger than it was before the financial crisis."

BLOOMBERG