LONDON: The European Central Bank could stagger the process of raising euro zone interest rates by first lifting its sub-zero deposit rate back toward positive territory, one of its longest-standing policymakers, Ewald Nowotny, said on Tuesday.
Nowotny told Reuters in an interview that its 2.55 trillion euro ($3.1 trillion) bond buying programme would be wound down by the end of this year, which would then pave the way for the bank's first rate rise since a fumbled move in 2011.
He called on the ECB to get on with the process to ensure it can take a gradual approach, and to start with the deposit rate, which has been in negative territory since mid-2014.
"I would have no problem with moving from -0.4 percent to -0.2 percent as a first step and then, as a second step, include the (main refinancing) policy rate," he said.
"This is the structure. The exact timing? It's too early to tell you," Nowotny said.
The ECB is expected to lay out in June or July how it plans to wind down the 2.55 trillion euro stimulus programme it has been using to help the euro zone's economy over the last three years.
The bank has said its key rate will remain at its current level until 'well past' the end of these bond purchases. While policymakers have not provided more specific guidance, several rate setters have already said they are comfortable with market forecasts for a rate hike around April or May 2019.
"One of the strong arguments for moving perhaps a bit faster (with policy normalisation) is exactly to have some room for manoeuvre if we should see some deterioration in the economic condition," Nowotny said.
"As we see it now, the markets are already expecting this development (ending the bond buying programme)," Nowotny said. "I don't think there's very much preparation needed." ($1 = 0.8117 euros)
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