Update Villeroy: Must Reduce Bond Buying, Remain Accommodative

--Adds Quotes and Details Throughout

By Jack Duffy

     PARIS (MNI) - The European Central Bank must reduce the intensity of its

asset purchases while not shifting from its generous monetary policy stance,

Governing Council member Francois Villeroy de Galhau said Thursday, 

     Speaking in Paris, Villeroy said "we are now faced with a simple

requirement, in line with our mandate to maintain price stability, and the

progress towards our inflation target: we have to reduce the intensity of our

net asset purchases, while maintaining overall a substantially accommodative

monetary policy."

     Villeroy, who heads the Bank of France, said that while recalibrating its

QE bond buying program, "we should on the one hand exploit the margins of

flexibility of the programme and on the other hand hold in reserve an additional

purchasing capacity - if needed."

     The ECB is set to review and probably reduce its QE bond buying at its next

monetary policy meeting on Oct. 26, with most analysts expecting the current E60

billion-per-month pace to cut to around E40 billion. 

     Villeroy said that even with reducing in the flow of purchases,

reinvestment of maturing debt will mean that the central bank will be "a major

buyer" of euro debt for years. He noted that the ECB's huge balance sheet will

continue to exert downward pressure on yields, suggesting that the current

program could be lowering 10-year Eurozone yields by around 100 basis points. 

     Villeroy said that the rise in euro this year has stemmed from a

"significant reappraisal of growth prospects for the euro area, as well as from

the geopolitical context." He added that "the impact of the strong euro on

growth is currently offset by the strength of domestic demand in the euro area."

--MNI Paris Bureau; tel: +33 1-42-71-55-41; email: jack.duffy@marketnews.com

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

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