MNI INTERVIEW: ECB Could Delay Hikes: Bank Of Lithuania Head

By Luke Heighton

     FRANKFURT(MNI) - The ECB could delay raising key interest rates until late

2019 or early 2020, the governor of the Central Bank of Lithuania told MNI in an

interview, with next year shaping up to be "rich with surprises."

     For the moment, Vitas Vasiliauskas said he stood by the ECB's guidance that

interest rates will stay at current levels at least through the summer of 2019,

which has been widely interpreted as indicating a likely hike in the final

months of next year. But he acknowledged signs of an economic slowdown, and

pointed to multiple sources of uncertainty, including trade disputes between the

U.S. and other nations, Brexit and Italy's fight with European officials over

its fiscal plans.

     "I change my mind based on changing facts," Vasiliauskas said, "All of us

understand that next year may be rich with some surprises, and we still have a

lot of time before the summer of next year. So, my preference currently would be

to go forward as we are guided, but, of course, if there are any surprises you

have to react."

     "We still have time until 2019, 2020, and I think there are many options on

the table if there is a need to use them," he said, referring to

non-conventional policy mechanisms, including targeted longer-term refinancing

operations and additional quantitative easing.

     "TLTROs are one of the options, yes. Especially having in mind that it can

be quite important for the banking sectors in some EU jurisdictions," he said.

"The size of the balance sheet is also one of the instruments of monetary

policy, so when I say that we are quite flexible in using any options, that is

one of them."

     --ONLY A SLOWDOWN FOR NOW

     While the interview took place in Vilnius on Dec. 3, before the ECB's

meeting Dec. 13, at which the central bank confirmed the upcoming end of its net

asset purchases but acknowledged that the balance or risks was shifting towards

the downside, Vasiliauskas's staff confirmed Dec. 17 that he still stood by his

remarks.

     "At the moment we can't talk about a crisis, only a slowdown" he added. "Of

course, a radical slowdown will come, the only question is only when it will

happen. History shows that the economy is cyclical, so it will come. The

question is when."

     The ECB's chief economist, Peter Praet, has said that the bank is relying

on forward guidance on key interest rates to keep monetary policy accommodative

as it prepares to end its net asset purchases after this month. Vasiliauskas

said he would be open to modifying the guidance in the medium-term, including

the possibility of being more specific about when interest rate moves are likely

to take place, data permitting.

     "If there is a possibility to achieve more clarity, then I can agree with

some changes," he said.

     With regards to his own nation's economy, Vasiliauskas said he expected

Lithuanian GDP to grow by 3.4% this year and by 2.8% in 2019.

     "We are very sensitive to the external environment, and we see some

possibilities of slowdown in exports," Vasiliauskas said. "And it is related, of

course, first of all, to all those trade uncertainties that exist - some

regarding Brexit, some regarding the situation, or, let's say, discussions, in

other eurozone countries. As regards domestic consumption, it's still growing.

The level of investment is still growing."

     "[The ECB's asset purchase programme] has ended, but then there will be

continued reinvestments, so we will still continue with a very accommodative

monetary policy."

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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