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ECB hawks demand revolution as Draghi's era nears end

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ECB hawks demand revolution as Draghi's era nears end
FILE PHOTO: The logo of the European Central Bank outside its headquarters in Frankfurt, Germany, April 26, 2018. REUTERS/Kai Pfaffenbach   -   Copyright  Kai Pfaffenbach(Reuters)
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By Francesco Canepa and Balazs Koranyi

FRANKFURT/NEW YORK (Reuters) – Two outspoken sceptics of the European Central Bank’s stimulus policy on Wednesday demanded a radical rethink of the ECB’s strategy under incoming President Christine Lagarde.

The central bank governors of Austria, Robert Holzmannn, and the Netherlands, Klaas Knot, questioned the ECB’s revered inflation target of just under 2%, which has proven elusive for nearly a decade despite an ultra-easy policy under President Mario Draghi.

“I am fundamentally questioning the paradigm”, Holzmann told German business daily Handelsblatt. “I urge a review to determine whether the current position is right.”

He was speaking a week before the last Governing Council meeting of Draghi’s eight-year term as ECB President, which has been largely defined by a 2.6 trillion euro bond-buying programme and other aggressive measures to boost inflation and keep the euro zone from falling apart.

Holzmann questioned the validity of these efforts and said the chances were high that the inflation target could be modified under Lagarde, who will take over on Nov 1.

Speaking in New York earlier, Knot said the ECB should define a range around its inflation target and give itself more time to achieve it so as to leave itself some wiggle-room when setting policy.

“One way to achieve this would be the introduction of a symmetric band around the inflation aim, which would buy the central bank time and flexibility in responding to forces it cannot control,” Knot said.

Knot and Holzmann were in a group comprising just over a third of the 25 members of the ECB’s Governing Council who opposed a decision to resume bond purchases at the last meeting.

The unprecedented spat culminated in the resignation of Germany’s appointee to the ECB’s board, Sabine Lautenschlaeger, late last month.

(Reporting by Francesco Canepa and Balazs Koranyi; Additional reporting by Tassilo Hummel; Editing by Paul Carrel and Hugh Lawson)

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