(Bloomberg) -- The European Central Bank's decision to lower the pace of bond purchases was based on three key factors, according to its chief economist.
“When considering the appropriate calibration of the asset-purchase program there were three important dimensions to consider: pace, horizon and optionality,” Peter Praet said at a workshop in Frankfurt on Monday. “The brighter economic prospects have increased our confidence in the gradual convergence of inflation toward our aim. This called for a lower pace of purchases.”
The Governing Council announced plans on Oct. 26 to slow bond-buying in 2018, reducing its current monthly pace of 60 billion euros ($70 billion) to 30 billion euros from January. Policy makers argued that while economic growth was strengthening and subject to possible upside surprises, inflation is still showing few signs of a sustained pickup.
Praet added that a sufficiently long horizon of additional net purchases -- the program was extended through at least September -- will help price pressures form and anchor expectations that borrowing costs will remain low. ECB officials also considered “optionality” -- the possibility to recalibrate the program if needed.
“We have always emphasized that monetary policy needs to be persistent and patient for underlying inflation pressures to gradually build up,” Praet said. “The longer horizon also anchors short-term interest-rate expectations for a longer period, thereby reinforcing the Governing Council's forward guidance on policy rates.”
To contact the reporter on this story: Carolynn Look in Frankfurt at clook4@bloomberg.net.
To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Jana Randow
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