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ECB can accelerate bond taper if inflation stays high: Knot

ECB can accelerate bond taper if inflation stays high: Knot
ECB can accelerate bond taper if inflation stays high: Knot   -   Copyright  Thomson Reuters 2021
By Reuters

FRANKFURT – The European Central Bank is close to meeting its 2% medium-term inflation target and can unwind stimulus quicker than now planned if price growth continues to surprise on the upside, Dutch central bank chief Klaas Knot told a German newspaper.

The ECB curbed its stimulus earlier this month but extended support measures, arguing that inflation beyond the current spike will remain too low, requiring longer support.

“It is safe to say we are very, very close to ‘mission accomplished’,” Knot told Boersen-Zeitung. “The risks to inflation are clearly tilted to the upside.”

Although several conservative policymakers objected to the ECB‘s decision to extend stimulus, Knot, a frequent critic of easy policy in the past, said he was “comfortable” with the plan to gradually unwind bond purchases in 2022.

But he also warned against complacency, arguing that if inflation proves to be higher than predicted, the ECB may need to unwind support measures more quickly.

“If we want a gradual and smooth exit, it is therefore even more important that we start early,” he said. “The last thing you want in such a situation is to fall behind the curve. Once you fall behind the curve, it takes an abrupt, shock-wise correction to get back ahead of it.”