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FRANKFURT - The European Central Bank must not reduce stimulus too early and should retain the exceptional flexibility of its emergency bond purchase scheme beyond the current crisis, ECB board member Fabio Panetta said on Monday.

Aiming to sure up the euro zone economy during a deep recession, the ECB agreed on exceptional flexibility for its 1.85 trillion euro Pandemic Emergency Purchase Programme last year. The scheme could end as soon as next March, raising the risk of an ECB retreat in some markets.

More traditional instruments, such as the Asset Purchase Programme, make it difficult for the ECB to concentrate bond purchases in certain markets or to flexibly vary the size of its intervention.

"The pandemic emergency purchase programme has shown the benefits of flexible monetary policies when differences in financing conditions across countries represent a persistent obstacle to the transmission mechanism," Panetta said.

"We should strive to retain the 'unconventional flexibility' that has served us well during the pandemic," Panetta told a conference.

Those comments could put Panetta on a collision course with influential policymakers such as ECB Executive Board member Isabel Schnabel and Bundesbank President Jens Weidmann, who have both argued against retaining all of PEPP's flexibility beyond the current crisis.

Panetta also warned against cutting ECB support too soon, saying an early retreat would push up borrowing costs too much and would eventually force the ECB to ramp up purchases later.

"Experience shows that attempting to reduce the pace of asset purchases too early would lead to a tightening of financing conditions and a higher pace of purchases later," he said.

(Reporting by Balazs Koranyi, Editing by Timothy Heritage)