The European Central Bank is increasingly confident that inflation is rising back to its target and will next week debate whether to gradually unwind bond purchases, ECB chief economist Peter Praet said on Wednesday.
Having revived growth with an unprecedented 2.55 trillion euro ($2.99 trillion) bond purchase scheme, ECB policymakers have been debating whether to end the purchases by the close of the year as the threat of deflation is long gone and the bloc is on its best growth run in a decade.
While policymakers are in broad agreement that the purchases can end, ECB President Mario Draghi has avoided any formal discussion about winding down the program, looking for more evidence that inflation is on a sustained rebound.
Draghi laid down several criteria before the bond buys can end and comments from Praet suggest the ECB sees progress in all of them.
“Signals showing the convergence of inflation towards our aim have been improving, and both the underlying strength in the euro area economy and the fact that such strength is increasingly affecting wage formation supports our confidence that inflation will reach a level of below, but close to, 2 percent over the medium term,” Praet said in Berlin.
“Waning market expectations of sizeable further expansions of our program have been accompanied by inflation expectations that are increasingly consistent with our aim,” Praet, a close ally of Draghi said in his final speech before the ECB’s quiet period ahead of its June policy meeting.
While many policymakers expect a final decision on whether to end the buys only at the July meeting, Praet’s comments suggest that a discussion will begin on Thursday next week, when the Governing Council meets in Riga.
The buys, now reduced to 30 billion euros a month, are due to run until the end of September but policymakers have long argued that they should be wound down gradually, over the course of several months.
“Next week, the Governing Council will have to assess whether progress so far has been sufficient to warrant a gradual unwinding of our net purchases,” he said, noting that it will be a “judgement” call.