ECB’s Visco says deflation fears eased but asset purchases must go on

ROME (Reuters) – The European Central Bank must continue its asset-purchasing program to ensure that euro area inflation returns to target levels, despite signs that deflation fears have eased, ECB governing council member Ignazio Visco said on Tuesday.

“Fears of deflation have abated but the positive effects of the program observed so far should not weaken our determination to take it forward,” Visco said in a speech to the annual shareholder assembly of the Bank of Italy.

He said it was vital that inflation be brought back permanently to the ECB’s target level of close to 2 percent. He dismissed concerns that the ultra-low interest rates created by the ECB’s so-called “quantitative easing” measures could encourage reckless risk taking on financial markets.

“There are no signs to date that low interest rates are provoking generalized imbalances,” he said.

He also noted that the Greek crisis had so far had only a limited impact on sovereign risk premiums in the rest of the euro area, thanks to measures undertaken by governments and the ECB. But he said the uncertainty surrounding the discussions between Athens and its international creditors “are fuelling grave tensions that could prove destabilizing.”

Visco, who is governor of the Italian central bank, said the Italian economy was showing signs of recovery and should expand in 2015 but he noted that it was still lagging behind the average for the euro zone as a whole.

He said government reform measures had been recognized by Italy’s partners and on financial markets but said they must continue and their implementation should be accelerated.

(Reporting by James Mackenzie)

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