Underlying inflation in the eurozone may remain lower than expected even if growth is robust, so the European Central Bank needs to remain patient in removing stimulus, Governor of Bank of Finland, Erkki Liikanen said on Tuesday.
"A gradual tightening of monetary policy will rest on a more solid basis when indications of inflation rates to potentially temporarily exceed two percent become more prominent in inflation expectations," said Liikanen, the governor of Finland's central bank.
Ending lavish bond buys by later this year is the focus of ECB policymakers, even if inflation couldn't achieve the target of 2 percent. "The euro area inflation rate is sustainable when the ECB's price stability objective can be met even without an exceptionally accommodative monetary policy," Liikanen said.
Liikanen said that underlying inflation might remain lower than expected but that will be because reducing economic slack may no longer cause inflation to rise as it has in the past. Inflation expectations have remained low and perhaps the economy's growth potential is greater than earlier thought, he said.
(With inputs from Reuters)