ECB needs big shock to reverse decision to end bond buys: Lane

SINTRA, Portugal (Reuters) - It would take a sizable economic shock for the European Central Bank to reverse its decision to end bond purchases by the close of the year, Irish central bank chief Philip Lane said on Tuesday.

The ECB last week said it "anticipates" that bond purchases would end this year, a wording that appeared at least to some investors to leave the door open to another extension of the purchases.

"It would take a sizable shock to the world economy to change our decision to end net purchases," Lane told Reuters on the sidelines of a central banking conference.

"You never want to rule it out but the main tools of adjustment are the forward guidance and interest rates," Lane, who is often mentioned as a candidate to replace ECB chief economist Peter Praet when his mandate expires next year, added.

He added that hanging on to the 2.6 trillion euro pile of bonds that the ECB has bought and reinvesting cash from maturing debt would in itself lower long-term borrowing costs by about 100 basis points.

The ECB targets inflation at just below 2 percent but has undershot this for five years, even as it deployed unprecedented stimulus.

Price growth is now rebounding, due in part to higher oil prices but may not reach the ECB's target for another several years as slack in the labor market remains sizable.

Still, the bloc is growing fast enough to absorb this slack, suggesting that inflationary pressures will slowly build, even as the ECB has already removed some monetary accommodation.

(Reporting by Balazs Koranyi; editing by John Stonestreet)

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