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Easing Euro Zone Inflation Creates Room for Rate Cuts, ECB's Knot

AMSTERDAM, May 14 (Reuters) - Euro zone price pressures continue to ease, giving European Central Bank policymakers increased confidence inflation will ease back to target next year, Dutch central bank chief Klaas Knot said on Tuesday.

The ECB has all but promised to start cutting interest rates from record highs next month but the path further ahead remains open, particularly as the U.S. Federal Reserve now looks less likely to start cutting interest rates before the autumn.

Knot told a conference that it will be appropriate for the ECB to start removing some monetary restriction if growth and price developments remain on their current path .

"If we manage to continue on this track, incoming data continues to validate this development, then it will be appropriate for us to gradually take our foot off the brake and remove some of the restrictive monetary policy," Knot said.

He said growth in contractual wages was slowing but so was productivity, which implies costs for firms are not declining.

"Probably next week we'll get another negative productivity growth number," Knot said.

Sitting alongside Federal Reserve Chair Jerome Powell, Knot played down the effect of the Fed's own policy decisions on the ECB, saying a weaker euro may be offset by higher bond yields.

"I don't think it will change the direction of travel in the euro area that much," Knot said.

Reporting by Toby Sterling and Bart Meijer; writing by Balazs Koranyi and Francesco Canepa; editing by Alexandra Hudson and Timothy Heritage

Source: Reuters

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