ECB's Constancio favor gradual tightening despite bubble fears

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[November 29, 2017]  FRANKFURT (Reuters) - The European Central Bank should withdraw its stimulus only gradually despite fears that it is helping fuel bubbles in property and financial markets, its vice president, Vitor Constancio, told Reuters on Wednesday.

European Central Bank Vice President Vitor Constancio speaks during a Reuters Newsmaker event in New York February 19, 2016. REUTERS/Brendan McDermid

The ECB has been has extended its bond-buying stimulus program into its fourth year, albeit at a reduced pace, even as growth in the euro zone is on its best run for a decade and many financial assets are at record highs.

Constancio acknowledged the risk for financial stability from overly ebullient markets, but reaffirmed his long-standing call for "gradualism" in policy tightening when asked.

"Yes because our mandate gives absolute priority to price stability and to create the economic and financing conditions for the normalization of inflation," he said in response to a question about whether he stood by that view.

He was speaking after unveiling the ECB's biannual Financial Stability Review, in which Frankfurt said risks to euro zone financial stability were contained even if vulnerabilities remained.

Constancio added that a market correction elsewhere in the world could affect Europe but would not necessarily warrant further stimulus from the ECB.

"Some correction of prices in asset markets would not be enough to derail the economic recovery," he said.

"Other, deeper events could, so...we would then adjust according to what may happen."

(Reporting By Francesco Canepa; Editing by Toby Chopra)

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