THE European Central Bank (ECB) can change its plans to start raising interest rates late next year if borrowing costs rise too far or inflation slows, ECB President Mario Draghi said on Friday.

Having pumped 2.6 trillion euro (US$2.95 trillion) into the euro zone’s financial system since 2015 in a bid to revive inflation, the ECB expects to stop adding to its bond pile in December and raise rates sometime after next summer for the first time in eight years.

Draghi stuck to those plans in his speech but cautioned the rate path might change, hinting at a spillover from the United States, where the Federal Reserve has been steadily raising its interest rate, or ripple effects from Italy, whose government has upset bond investors with plans to spend more, as possible reasons.

“If financial or liquidity conditions should tighten unduly or if the inflation outlook should deteriorate, our reaction function is well defined,” Draghi told an audience of bankers.

“This should in turn be reflected in an adjustment in the expected path of future interest rates.”

Speaking later at the same event, the Bundesbank’s President Jens Weidmann countered Draghi’s cautious tone.

He called for the ECB to restore the monetary policy it had before starting its aggressive stimulus policy of massive bond purchases and sub-zero interest rates.

The eurozone economy has slowed in recent months amid weaker demand from China, higher interest rates for dollar borrowers across the world and jittery bond markets in Italy.

Draghi saw “no reason” to expect the bloc’s economy to stop expanding and drag down price growth with it. But he warned of increased uncertainty around the outlook.

“If firms start to become more uncertain about the growth and inflation outlook, the squeeze on margins could prove more persistent,” Draghi said.

(SD-Agencies)