ECB cannot count on swift rebound in inflation: Nowotny

By Shadia Nasralla

VIENNA (Reuters) - The European Central Bank cannot count on a swift rebound in inflation as factors such as a slump in oil and weak growth in China keep a lid on prices, governing council member Ewald Nowotny said on Thursday.

The ECB, which launched an aggressive stimulus program in March, said in its June forecasts that it expected headline inflation of 0.3 percent this year, 1.5 percent in 2016 and 1.8 percent in 2017.

But these estimates have come under pressure in recent weeks as oil prices slumped and the Chinese economy stuttered.

"For the immediate future we’ll have to face a development of lower prices, particularly oil prices," Nowotny said on the sidelines of an event in Vienna.

Asked whether he expected the ECB's inflation forecasts to be cut, Nowotny said: "It's too early to say but we can definitely not count on a swift return to our price stability objective (of near 2 percent inflation)."

Nowotny, who is also the head of Austria's central bank, said there was no sign the ECB would terminate its 60-billion-euros a month asset-purchase programme before its scheduled end in September 2016.

He acknowledged the Chinese slowdown posed a risk to the global economy but added the euro zone should be relatively shielded from it.

"It's certainly a risk for the global economy overall (but) the impact on the euro zone should be relatively small," Nowotny said.

"It is more of a problem that the emerging markets show a significantly subdued dynamic."

China devalued its currency earlier this month after a run of poor economic data, fuelling fears that central banks around the world would race to weaken their currencies to gain an export advantage.

Nowotny dismissed suggestions of such a currency war but said the devaluation in the Chinese yuan would have an impact on other economies in South East Asia.

"As you can't see this in isolation, rather this (devaluation) has an impact on other countries so that it can lead to a certain disquiet in an important part of the global economy, namely in southeast Asian countries," Nowotny said.

(Writing by Francesco Canepa in Frankfurt; Editing by Toby Chopra)

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