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ECB must not delay rolling back stimulus - Weidmann

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By Reuters
ECB must not delay rolling back stimulus - Weidmann
FILE PHOTO: Germany's Bundesbank President Jens Weidmann speaks in Berlin, Germany, August 23, 2018. REUTERS/Hannibal Hanschke -/File Photo   -   Copyright  Hannibal Hanschke(Reuters)

BERLIN (Reuters) – The European Central Bank should roll back its stimulus programme now that inflation is consistent with its target, Bundesbank President Jens Weidmann said on Thursday, warning against a delay in normalisation after years of central bank support.

The ECB agreed in June to end massive bond purchases by the close of the year, but Weidmann, an outspoken critic of the central bank’s easy-money policy, said this should be just the first step in a process that might take years.

“It’s also time to begin exiting the very expansionary monetary policy and the non-standard measures, especially considering their possible side effects,” Weidmann told reporters.

“This normalisation process will probably take place only gradually over the next few years. That’s exactly why it has been so important to actually get the ball rolling without undue delay,” he said.

Weidmann was in the spotlight this week after the newspaper Handelsblatt said Chancellor Angela Merkel was giving up on promoting him to succeed ECB chief Mario Draghi next year. She was focusing now on securing the European Commission presidency for a German candidate, the newspaper said.

Weidmann made no reference to the ECB succession in his remarks.

Draghi has also guided markets for an interest rate hike only after next summer, a timeline some hawks consider too soft given that inflation has rebounded, the bloc is into its sixth year of expansion and employment is at record highs.

Weighing on the debate whether inflation is already high enough, Weidmann said that the ECB’s projection of 1.7 percent for 2020 is “broadly consistent” with the bank’s mandate of close to but below 2 percent, a view contrary to Draghi’s take.

Inflation rose to 2.1 percent last month, mostly on higher energy prices. It is likely to fall back below 2 percent in the coming months as domestic price pressures remain muted.

“However, they are likely to intensify as aggregate capacity utilisation increases,” Weidmann said about domestic prices. “They will thus counteract waning impetus from other components of the inflation rate, such as energy prices.”

(Reporting by Michael Nienaber, writing by Balazs Koranyi, editing by Larry King)