ROME (Reuters) – A continued recovery in euro zone inflation is “crucially contingent” on low borrowing costs and, in turn, on an easy monetary policy from the European Central Bank, the ECB’s chief economist Peter Praet said on Tuesday.
ECB policymakers have been trying to steady investors since suggestions by President Mario Draghi last week that the central bank may change its policy rattled markets.
Echoing Draghi’s remarks, Praet predicted that stronger growth in the euro zone would boost returns on investments, thereby making borrowing more attractive and reinforcing the ECB’s monetary stimulus.
But he cautioned that ultra-easy financial conditions were still needed.
“The baseline scenario for future inflation remains crucially contingent on very easy financing conditions which, to a large extent, depend on the current accommodative monetary policy stance,” he said at an event in Rome.
Draghi’s comments in Sintra, Portugal, sent euro zone government bond yields and the euro <EUR=> rallying last week, threatening to undo some of the central bank’s own work.
Sources have told Reuters the market move had spooked some policymakers, making the nervous about signaling a change in policy when they meet again on July 20.
The ECB is on course to buying 2.3 trillion euros worth of bonds in a bid to bring inflation back to its target of almost 2 percent, from just above 1 percent currently.
(Reporting by Francesco Canepa Editing by Jeremy Gaunt)