ECB should slow asset purchases, but keep policy loose: Villeroy

[September 28, 2017]   PARIS (Reuters) - The European Central Bank should slow the pace of its asset purchases while also keeping monetary policy accommodative overall, ECB Governing Council member Francois Villeroy de Galhau said on Thursday.

Despite firming economic growth in the euro zone, the ECB has only gradually moved toward reducing its exceptionally loose monetary policy as inflation has remained below its two percent target.

Villeroy said there was no doubt that the current economic and job market recovery would lead to higher inflation although questions linger about how long that will take.

"We are facing today a simple requirement linked to our mandate of maintaining price stability and the progress toward our inflation target," Villeroy told group of bankers in a speech made available to the press

"We must reduce the intensity of our net asset purchases while also keeping overall our monetary policy significantly accommodative," Villeroy added.

ECB President Mario Draghi suggested earlier this month that policymakers would take a decision on the future of its 2.3 trillion euro ($2.71 trillion) bond-buying program.

Sources told Reuters earlier this month that ECB policymakers had agreed that the next step would be to reduce its monetary stimulus.

Governor of the Bank of France Francois Villeroy de Galhau attends a press conference after the Franco-German Financial Council meeting in Berlin, Germany, September 23, 2016. REUTERS/Axel Schmidt/File Photo

Villeroy said the ECB had to be "pragmatic" about reducing asset purchases and keep open the possibility of additional purchases should it prove necessary.

He added that in any case the ECB should not consider an increase in interest rates until it sees a lasting increase in inflation.

Though inflation is rising, central bankers have remained uneasy about weak wage growth, which in the past has been necessary to anchor steady inflation over time.

Villeroy said that the economic recovery should lift obstacles to faster wage growth and said that in light of the euro's recent rally the ECB was closely monitoring exchange rates due to their impact on inflation.

(Reporting by Leigh Thomas; editing by John Irish)

[© 2017 Thomson Reuters. All rights reserved.]

Copyright 2017 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.