MNI: ECB Knot: APP Phase-Out Sept '18 Right If No Defla Risk

--Knot: With Defla Risk Off Table, APP Rational No Longer Exists

     LONDON (MNI) - Unless there is an obvious deflation risk, the European

Central Bank should phase out the Asset Purchase Programme after September 2018,

Governing Council member Klaas Knot said Wednesday.

     "With deflation risk clearly off the radar, the main rationale for

employing the APP has therefore ceased to exist," Knot told the Business

Economists annual dinner in London

     "Absent deflation risk, a full phasing-out of net asset purchases from

September 2018 onwards is warranted," said Knot, who is also President of the

Dutch National Bank. 

     This, Knot argued, will need a communications shift by the central bank.

     "Our communication will have to shift accordingly, from net asset purchases

and incremental stimulus towards reinvestment and preservation of broadly

accommodative financing conditions," he said.

     According to Knot, the current inflation outlook in the euro area "poses no

threat to price stability" and the ECB is, therefore, fulfilling its mandate,

despite ECB undershooting target in the near-term.

     "This is thanks to a combination of monetary policy measures, including the

Asset Purchase Programme, which has achieved what could reasonably have been

expected," he said.

     According to Knot, the slow inflation convergence towards the medium-term

objective "is due to global supply factors largely outside the realm of central

banking".

     He was also upbeat about the overall outlook, saying a broad-based economic

expansion is taking hold across the euro area. 

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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