Says Rome must reassure investors, Commission
Warns of stagflation risk from Middle Eastern conflict
Opposes raising reserve requirements

ATHENS, Oct 12 Reuters The European Central Bank should not stop its bond purchases early because they may still need to calm jittery markets but it is down to governments, including Italy39;s, to keep bondholders on side, ECB policymaker Yannis Stournaras told Reuters.

In the interview, Greece39;s central bank governor also warned about the risk of stagflation from a prolonged war in the Middle East and spoke against increasing the amount of reserves that banks must hold.

He countered calls by some of his colleagues for an early end to the ECB39;s last surviving bondbuying scheme, saying the central bank may need that firepower in a geopolitical environment fraught with risks.

I see no value in bringing it the end forward especially now under the new uncertainty we have because of the events in Israel and Palestine, he said. So we need to keep our flexibility and act if necessary.

The ECB all but stopped buying bonds last year after a sudden surge in inflation forced it to unwind a decade of stimulus policies.

But it has retained the Pandemic Emergency Purchase Programme as a first line of defence against sudden spikes in borrowing costs for debtladen countries, such as Italy, saying it would replace bonds that mature until the end of next year.

Investors have been demanding a higher premium to hold Italian government bonds…