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ECB's Centeno warns of inflation uncertainty, urges caution

·1-min read
FILE PHOTO: ECB governing council member Mario Centeno speaks during an interview with Reuters, in Lisbon

By Sergio Goncalves

LISBON (Reuters) -European Central Bank Governing Council member Mario Centeno said on Monday there was "uncertainty" about inflation that required constant monitoring, but that fresh anti-COVID-19 lockdowns in Europe should not lead to price increases.

"We have to remain cautious," he told reporters.

While lockdowns and other consequences of the surging infection numbers across Europe were worrying, he said these "should not lead to an increase in inflation - on the contrary".

ECB policymakers meeting last week sought a greater acknowledgement of inflation risks, sources close to the debate told Reuters, but the bank has stuck with its narrative that price growth will slip back below the target level on its own in late 2022.

Centeno said that "inflation in general is highly dependent on reducing the impact of factors that remain temporary" such as high energy prices, supply bottlenecks or the impact of the pandemic on the economy.

"The effect of the pandemic is still present and the economic and financial consequences of the pandemic will only unfold over time," said Centeno, who is the governor of the Bank of Portugal.

In its financial stability report released on Monday, the Bank of Portugal said the ECB was in "a complex situation because a premature normalisation of monetary policy will have a negative impact on the economy", when the recovery is not complete.

"This can lead to abrupt corrections in financial markets," it said.

However, removing monetary stimulus too late could lead to "an accumulation of vulnerabilities, in a context where there are signs of exuberance in the financial asset and residential real estate markets at an international level".

(Reporting by Sergio Goncalves, Editing by Andrei Khalip and Alison Williams)

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