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4/6/2017, 10:43 AM (Source: TeleTrader)
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Praet: ECB sticks to forward guidance for policy

Without reassurance from the European Central Bank that rates of interest will remain close to the lower bound throughout the quantitative easing program, the scheme wouldn't be as effective, said Peter Praet, the institution's chief economist. Speaking on Thursday to participants at the ECB and Its Watchers Conference in Frankfurt, he explained policymakers tend to sequence "internalize and exploit the intimate complementarities" between the asset purchase programme (APP) and interest rate policy.

The easing measures are working and the balance of risks to the growth is improving, though they are still tilted to the downside, the central banker underscored and reiterated inflation remains fragile. Praet stressed forward guidance is a key policy and that it is very effective.

"If investors start perceiving that the path of the policy rate is subject to upward uncertainty, the compensation for interest rate risk – i.e. the term premium – will have to increase... These strong complementarities between instruments are behind the way the expected plans for the evolution of APP and the policy rates have been lined up in time in the Governing Council’s intentions," the member of the ECB's board said.

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