MNI: Praet Says Econ Must Progress to Trigger Higher Inflation

By Christian Vits

     FRANKFURT (MNI) - Although the Eurozone economy is recovering, is is not

yet helping deliver a sustained adjustment in inflation levels towards the

European Central Bank's target, Chief Economist Peter Praet said Monday. 

     "While the euro area recovery remains solid, broad-based and resilient, the

economy has yet to make sufficient progress towards a sustained adjustment in

the path of inflation to levels that are consistent with the Governing Council's

aim," Praet said in a speech in London.

     "A very substantial degree of monetary accommodation is still needed for

underlying inflation pressures to gradually build up," he added.

     The ECB is expected to announce at its next monetary policy meeting on Oct.

26 whether it intends to cut its stimulus measures against the background of

solid growth and falling unemployment in the currency bloc. 

     Inflation is still below the ECB's target of "below but close to" 2% and

held steady in September at 1.5%, unchanged from the previous month.

     ECB president Mario Draghi said in September, that the bank intends to run

its net asset purchases, at the current monthly pace of E60 billion, until the

end of this year or beyond, if necessary. The program will be continued "in any

case until the Governing Council sees a sustained adjustment in the path of

inflation consistent with its inflation aim," Draghi added.

     Praet also noted that investors can better handle more extended bond

purchases in calm times. 

     "In more normal market conditions, the market's capacity to engage in

inter-temporal arbitrage improves. Consequently, investors may become more

patient, or, in other words, better able to evaluate the stimulus that can be

expected to come from a purchase plan that is to be executed over a more

extended time interval," he said.

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

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