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ECB's Knot says restart of quantitative easing not yet warranted

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ECB's Knot says restart of quantitative easing not yet warranted

European Central Bank rate-setter Klaas Knot tempered expectations of a major economic stimulus package in September as he objected to a possible immediate resumption of the central bank's asset purchase program.

Knot, a member of the ECB's Governing Council, told Bloomberg News in an interview that the current weakness in the eurozone economy and the inflation outlook may not yet warrant a restart of quantitative easing.

The Dutch central bank chief said the ECB can resume asset purchases "if deflation risks come back on the agenda."

"Not reactivating the asset-purchase program also means you keep some powder dry for when actually future contingencies happen," said Knot, who serves as president of De Nederlandsche Bank NV.

The ECB hinted in July that a stimulus package that could include an interest rate cut and another round of bond purchases was forthcoming. ECB President Mario Draghi said a "significant degree" of stimulus was needed as he warned of a worsening economic outlook for the eurozone.

Knot said market expectations of a possible major stimulus are "overdone" and signaled that he would only favor an interest rate cut for now.

Meanwhile, incoming ECB President Christine Lagarde said the central bank should "keep all policy tools on the table," calling the asset purchase program an "effective" instrument.

"The ECB has a broad tool kit at its disposal and must stand ready to act," Lagarde said in written responses to the European Parliament's committee on economic and monetary affairs.

Lagarde said monetary policy should remain "highly accommodative for the foreseeable future" and that the ECB has the room to cut rates further. However, she urged caution in keeping interest rates below zero for a prolonged period due to their "adverse" impact.

"While I do not believe that the ECB has hit the effective lower bound on policy rates, it is clear that low rates have implications for the banking sector and financial stability more generally," Lagarde said.