ECB’s Nowotny challenges cautious message with rate hike talk

VIENNA/FRANKFURT (Reuters) – European Central Bank policymaker Ewald Nowotny challenged a choir of cautious comments from his colleagues on Friday, saying the ECB had achieved its inflation goal and should hike its key interest rate as soon as possible.

The ECB announced the end of its 2.6 trillion euro ($2.9 trillion) stimulus program on Thursday but President Mario Draghi couched the decision in warnings about slower growth and risks from protectionism to Brexit.

Nowotny, an outspoken policy hawk who heads Austria’s central bank, sang from a different hymn sheet, saying market expectations, which don’t foresee a hike to the ECB’s deposit rate until 2020, were not in line with the central bank’s guidance.

His comments laid bare diverging views on the ECB’s Governing Council, where some policymakers had urged Draghi to sound even more cautious than he eventually did on the economic outlook on Thursday.

“My personal view is that specifically this rate, that is this phenomenon of negative interest rates, should be reconsidered as soon as economically possible,” Nowotny told a news conference.

“It is also a specificity of the ECB. The U.S. never had a negative rate,” he said.

The ECB has said it will keep rates at their current, record-low levels at least through next summer but money markets don’t price in a hike until 2020.

Speaking earlier in Frankfurt, ECB Vice President Luis de Guindos said investors were forecasting a hike in September or October but struck a cautious note, saying the central bank should keep its options open.

“When you are in a dark room you have to be very cautious and try to keep your optionality at the maximum level,” de Guindos told a conference.

French central bank governor Francois Villeroy de Galhau had also said late on Thursday the ECB’s monetary policy wold remain flexible in the face of uncertainty.

Some rate-setters wanted Draghi to go a step further and say that risks surrounding the economic outlook were “tilted to the downside” — a phrase the ECB has used in the past to signal its readiness to ease policy again, two sources told Reuters.

In the end, the ECB tweaked the wording of the introductory statement to reflect the increased economic concerns but kept its reference to balanced risks.

“Next year the balance of risk is more likely to turn in a negative direction but for the moment, because risks and economic data are quite mixed, yesterday’s meeting still described the risk outlook as balanced,” Lithuania’s central bank governor Vitas Vasiliauskas told reporters.

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