ECB UPDATE: Monpol Reassessment Must be Gradual, Cautious

--Adds Details and Context Throughout

By Christian Vits

     FRANKFURT (MNI) - European Central Bank policymakers underlined in their

most recent policy meeting on Sept 7 the need for monetary policy to remain

"persistent and patient".

     "Any reassessment of the monetary policy stance should proceed in a very

gradual and cautious manner, while maintaining sufficient flexibility, also in

the light of prevailing uncertainties with respect to the inflation outlook and

financial conditions," Governing Council members agreed, according to the

accounts of the meeting, released Thursday.

     They said that "a very substantial degree of monetary policy accommodation

was still needed" for inflation to converge sustainably to levels in line with

the ECB's target. "Discomfort was widely expressed" about the "very prolonged

period" over which inflation had been and still was expected to remain distant

from the bank's aim.

     On Oct 26, the ECB Governing Council will meet again and discuss whether

and when it will wind down its stimulus measures, with the discussions coming

against the background of solid growth and falling unemployment across the euro

zone. But inflation in the currency bloc remains below the ECB's target of

"below but close to" 2%. Eurozone inflation held steady in September at 1.5%,

unchanged from the previous month.

     Looking ahead, the bank expects inflation rates to "temporarily decline

towards the turn of the year", mainly reflecting base effects in energy prices.

Still, "measures of underlying inflation have ticked up moderately in recent

months, but have yet to show convincing signs of a sustained upward trend," ECB

president Mario Draghi said after the last meeting in September.

     Policy makers made the point that the overall degree of accommodation was

determined by the combination of all monetary policy measures deployed by the

ECB. They noted that the Governing Council's assessment of progress regarding a

sustained adjustment in the path of inflation should apply to the "overall

design and direction" of the ECB's policy stance as a whole, "and not with

reference to any particular instrument in isolation, such as the duration and

pace of APP purchases."

     Council members also noted "concerns" about a possible over appreciation of

the euro. "Concerns were expressed, notably about the recent momentum," the

accounts said. Downside risks to the growth outlook were seen mainly related to

"global factors and developments in foreign exchange markets", the accounts

said.

     Overall, members underlined a strong growth momentum in the euro zone with

risks for the expansion being "broadly balanced, "but with still subdued

inflation dynamics." They generally agreed that economic growth was still

conditional on continued favourable financing conditions, "while it was also

remarked that there were indications that the expansion was becoming

increasingly self-sustaining."

--MNI Frankfurt Bureau; +49 69 97782671; email: christian.vits@marketnews.com

[TOPICS: M$X$$$,M$$EC$]