The European Central Bank should not wait too long before paring back stimulus once it is convinced that inflation has recovered, and it could in theory increase rates early if necessary, ECB board member Benoit Coeure told Reuters.
With euro zone inflation now just under 2 percent and growth on its best run for years, the ECB is coming under pressure from Germany, the bloc's biggest economy, to start winding down its 2.3 trillion-euro ($2.6 trillion) bond-buying program and start increasing its main policy rate, currently below zero.
In an exclusive interview, Coeure, a long-standing supporter of ECB President Mario Draghi's policy, said the bank should be ready to change its stance once economic conditions allow, or it risks a bigger financial blow-back when it eventually does so.
"Too much gradualism in monetary policy bears the risk of larger market adjustments when the decision is eventually taken," Coeure said.
He added that the ECB should not put too much weight on political events like elections when deciding policy, a likely reference to elections in Germany in September and in Italy by May 2018.
While Coeure defended the bank's ultra-easy stance and policy guidance, he opened the door, at least in theory, to an increase in the bank's deposit rate even before bond purchases end, contrary to the bank's stated policy path.