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Euro zone inflation unaffected by Italy - ECB's Knot

Euro zone inflation unaffected by Italy - ECB's Knot
FILE PHOTO - European Central Bank's (ECB) Klaas Knot attends a forum organised by Mexico's Central Bank in Mexico City October 15, 2013. REUTERS/Tomas Bravo   -   Copyright  Tomas Bravo(Reuters)
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FRANKFURT (Reuters) – While doubts over Italy’s budget were “legitimate”, it was not the European Central Bank’s job to fix national economic policy, ECB policymaker Klaas Knot said in an interview published on Monday.

Knot, an outspoken policy hawk, also told Germany’s Boersen-Zeitung that the ECB could decide to provide guidance as to how many rate hikes it expects per year as it dials back years of massive monetary stimulus.

Italy’s borrowing costs soared on Monday, bank stocks tumbled and the euro weakened as a war of words between Rome and the European Union over Italian budget plans escalated.

But Knot, the Dutch central bank governor, said the outlook for inflation was seemingly unaffected, dashing hopes by some in Italy that the ECB could intervene to contain borrowing costs.

“The ECB is not there to correct or compensate purely national policies,” he said. “Crucial for us is the euro area inflation outlook, and this seems unaffected thus far.”

He added there were “legitimate doubts” as to whether Italy’s draft budget, which forecasts a higher deficit, was compatible with the Italian constitution and EU fiscal rules.

The ECB is due to stop its 2.6 trillion euro (2.28 trillion pounds) bond-buying programme at the end of the year but it has pledged to keep rates at their current, rock-bottom level through next summer.

Knot, who had said earlier on Monday that the timing of the first rate hike was still up for debate, told Boersen-Zeitung the central bank could also provide more details about its future policy path next year.

He took as a model the Federal Reserve, which publishes policymakers’ rate expectations in a so-called “dot plot”.

“We could say something about the possible number of interest rate hikes per year. We could do it like the Fed,” he said.

(Reporting By Francesco Canepa; Editing by Raissa Kasolowsky)

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