MNI I'VIEW: ECB Hansson: APP Can Be Phased-Out As Econ Evolves

--Hansson: If Econ Evolves As Expected, APP Can Be Ended

--Hansson: APP Options "Should Be Open On Both Sides"

--Hansson: Should Revisit APP If Unexpected Inflation Change

--Hansson: Sceptical Of Gov Bond Buys, Fan of Corp Bond Buys

--Hansson: Monthly Bond Buys Less Important Than Accumulated Stock

By Christian Vits

     FRANKFURT (MNI) - The European Central Bank may end its asset purchase

program in September next year given the ongoing solid economic developments,

Governing Council member Ardo Hansson told Market News in an exclusive

interview.

     "If the economy evolves broadly as we expect, if we see an uptick in

inflation and if it looks sustainable, this element of the program could be

phased out," Hansson said."It is likely to end in September, except if still

more is needed." 

     A reduction of the bond buys to zero "has to be one of the options, that is

on the table," he added.

     With the size of the accumulated stock, the re-investment policy, with the

announced sequencing and two very large monthly asset-buy reductions already

behind, "the issue how we will take the final steps sometime in the future seems

to be a relatively minor point. This final bit should not be daunting," Hansson

said.

     The ECB decided last month to extend its bond-buying program for nine

months although halving purchases from the current E60 billion per month to E30

billion, effective from the start of next year. ECB President Mario Draghi

argued in the following press conference that there is still "a large amount of

uncertainty" and added that the decision "is for an open-ended program and it is

not going to stop suddenly."

     Draghi stressed that the ECB stands ready "to increase the APP in terms of

size and/or duration" in case the outlook would deteriorate, while he avoided

mentioning action in the opposite direction.

     Draghi's comment -- or lack of -- did not faze Hansson.

     "The fact that something is not mentioned, does not mean necessarily that

it is 100 percent ruled out. It just means that you see a bias towards a certain

direction," Hansson noted.

     "The options should be open on both sides," he underlined by contrast.

"Because the decisions which have been taken are based on a baseline scenario

where you have uncertainty on both sides."

     There has been some discomfort among Governing Council members about the

open-ended nature of the APP, the recently published minutes of the October

meeting showed, with hawkish members arguing at least for an intended end-date.

     "If we would see an unexpected change in the outlook for inflation, I think

naturally we want to revisit this," Hansson, who heads the Estonian central

bank, said. "But if things evolve broadly in line with our current expectations,

then I think there is not much difference, whether you call it closed-ended or

open-ended."

     With regard to the composition of the bond buys, Hansson said he was always

sceptical on the purchases of government bonds and more a "fan" of corporate

bonds. "The corporate bond buys are better, because you directly put money into

the private sector," he said.

     At the same time, Hansson doesn't see a pressing problem due to the

scarcity of assets available on the markets. This is "not an issue right now",

he said.

     "Ultimately, every purchase program is closed-ended in the sense that there

is only so much you can buy. So, that issue will come up one time. But I think

this is premature to discuss."

     He did not accept the idea of broadening the asset universe through a

re-definition of the parameters of the purchase program. "I am not in favour to

change the issuer limits," he noted.

     Asked about the relevance of the monthly buys at the current juncture,

given the expansion of the ECB's balance sheet and the stock of assets held,

Hansson said that monetary policy "is not only about asset purchases. It is

about the stock, reinvestment and forward guidance. The whole package, even if

you leave aside APP, is still very accommodative."

     Hansson also struck a very positive tone on economic developments in the

Eurozone, which is currently enjoying a robust recovery. Growth averaged 2.5% in

the third quarter of the year, after increasing by 2.3% in the previous

three-month period.

     "If you look at a chart pack of the real economy, the news is incredibly

good," Hansson stressed, pointing to the euro area's and global economic growth,

increasing trade, high consumer confidence, falling unemployment and rising

employment. "There are very few elements of bad news," he added.

     "Now, if we experienced recently 2.5% growth and we think that potential

growth is quite a bit lower, the output gap seems to be closing very rapidly,"

he said.

     Hansson believes that the link between slack and wage or price inflation

"is somewhat disturbed" in the short-term. Still, he said, "I feel rather

convinced that sooner or later the developments -- maybe with some lags -- will

give support to higher inflation."

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

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

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