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The chief economist of the European Central Bank played down his previous remarks that a substantial level of monetary policy is still needed in the euro area, after those comments sent the euro to a session low on Tuesday.
The euro dropped to $1.121 on Tuesday morning, after the ECB's chief economist Peter Praet told a conference in London Tuesday that a significant monetary policy stimulus is still needed.
Speaking to CNBC, immediately after, Praet said: "I don't think it is new, actually. We always communicate that to reach this inflation path, close to 2 percent in the medium-term, we need a substantial degree of monetary accommodation."
"When we announced that we anticipate to end the asset purchase program at the end of this year, we said that we still needed a substantial degree of accommodation to support the base scenario," Praet also told CNBC's Joumanna Bercetche on Tuesday.
Praet, in his keynote address at the UBS European Conference, earlier on Tuesday, said central banks across the world have already tightened their monetary policy stance and unconventional policies have been wound down as well as policy rates have been "gradually increased."
He, however, noted that in the euro area "significant monetary policy stimulus is still needed to support the further build-up of inflationary pressures and headline inflation developments over the medium term."
The ECB announced earlier this year that its asset purchase program would come to an end in December, provided that the data would not change. At the time, the central bank also said that the first post-crisis rate should not come, at least, before the summer of 2019.
Praet told CNBC that "all options are open", including reviving the asset purchase program if the data changes in that direction.
"We communicate that all options are open in case, but you'd need to have a substantial degree of change in the base scenario to go back to non-conventional measures, I don't think this is a question today," he said.
On rate hike, Praet said it is "premature" to signal a rate path.
The ongoing battle between Europe and Rome over Italy's spending plans has risen the yields on Italian debt and sparked questions over potential spillover effects to the wider euro zone. It has also poised doubts over whether the situation will get so bad that Italy will need help from the European Union to finance itself.
Praet told CNBC the issue is "purely localized" and there has been little if any contagion to the rest of the euro area.
The ECB's chief economist also said there is little the central bank can do in this situation, unless Italy requests an Outright Monetary Transactions (OMTs) — a program under which the ECB buys short-term bonds in the secondary market - in this case of Italy, to being down funding costs for the country. However, there are "strict and effective" fiscal conditions that need to be met, which most likely take the form of austerity measures and structural reforms.
Austerity and structural reforms are two of the main issues that the anti-establishment government in Italy is trying to reverse.
ECB President Mario Draghi made similar comments last month. He told reporters that "What is available for the ECB towards a specific country is OMT" and that requires a financial rescue from the euro zone bailout fund - the European Stability Mechanism.