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ECB can lift deposit rate to get hikes rolling - Nowotny

Reuters  |  LONDON 

By Marc Jones

LONDON (Reuters) - The could raise its deposit rate first before moving its main interest rate later, policymaker Ewald said on Tuesday, sending the euro higher and drawing an unusual rebuttal from the ECB.

told in an interview that the ECB's 2.55 trillion euro ($3.1 trillion) bond-buying programme would be wound down by the end of this year, which would then pave the way for the first rate rise since a fumbled move in 2011.

He called on the ECB to get on with the process to ensure it can take a gradual approach, and to start with the deposit rate, which has been in negative territory since mid-2014.

"I would have no problem with moving from -0.4 percent to -0.2 percent as a first step and then, as a second step, include the (main refinancing) policy rate," said Nowotny, who sits on the "This is the structure. The exact timing? It's too early to tell you."

The ECB, which rarely comments on statements from individual policymakers, distanced itself from Nowotny's comments.

"Nowotny's views are his own. They do not represent the view of the Governing Council," a said. The euro had risen a third of a percent on Nowotny's initial comments.

The ECB is expected to lay out in June or July how it plans to wind down the stimulus programme of bond purchases it has been using to help the euro zone economy over the last three years.

The has said the key rate will remain at its current level until "well past" the end of these bond purchases. While policymakers have not provided more specific guidance, several rate-setters have already said they are comfortable with market forecasts of a rate increase around April or May 2019.

"One of the strong arguments for moving perhaps a bit faster (with policy normalisation) is exactly to have some room for manoeuvre if we should see some deterioration in the economic condition," said.

"As we see it now, the markets are already expecting this development (ending the bond buying programme)," Nowotny said. "I don't think there's very much preparation needed."

He was also sanguine about the heightened volatility in financial markets since February. "I think central policy always has to follow a medium-term strategy," he said, noting the euro zone's recent strong economic growth.

Trade tensions that have been escalating between the and could impact exchange rates, however. Turbulence could lead investors to move into safe havens, he said.

"For the time being I would rather expect that the euro zone is the safe haven and that of course would have some effect on the exchange rate," he said.

The euro gained 14 percent against the dollar in 2017. ECB in January called the single currency's strength a "source of uncertainty".

($1 = 0.8117 euros)

(Reporting by and Helen Reid; Editing by Kevin Liffey and David Stamp)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, April 10 2018. 22:54 IST