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With the ECB's current 2.3 trillion euro bond purchase program
due to end in December, ECB policymakers are likely to use their
meeting on Oct. 26 to debate the merits of either extending the
scheme for a relatively long period but with smaller monthly
purchases, or retaining bigger monthly purchases, but for a
shorter period.
"We are aiming for the prospect of a cautious normalization,"
Nowotny, who sits on the ECB's Governing Council, said in a
speech on Wednesday at a conference on financial supervision.
"Caution means not hitting the brakes abruptly, but slowly
taking your foot off the pedal."
Nowotny's comments echoed remarks last month by his German
counterpart, ECB hawk Jens Weidmann, who said that, with the
threat of euro zone deflation largely gone, the justification
for the ECB's massive asset purchase scheme is no longer there
and policymakers should ease up on stimulus.
Nowotny was not as specific but said that the ECB's target of
inflation just below 2 percent should be seen only as a
medium-term objective. Inflation has remained well below that
target and Nowotny said there was a debate among policymakers
about whether we were now in a long period of low inflation.
"From my own experience, I know that it is not so easy to
explain to the public why an inflation rate of 1.5 percent is so
much worse than an inflation rate of 1.9 percent," he said.
"Not only with cars but also with central banks, there is the
problem of braking distance - and therefore I think it is wise
to drive at a safe distance, but to react quickly to problems as
they arise."
(Reporting by Francois Murphy; Editing by Kevin Liffey)
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