German rate setters call for preparing end of ECB’s easy policy

2017-03-29

German rate setters call for preparing end of ECB’s easy policy

Germany’s two representatives on the European Central Bank’s main policy-making body called on Monday for it to prepare to wind down its aggressive stimulus policy as soon as economic conditions allow it.

The comments by Bundesbank president Jens Weidmann and by Sabine Lautenschlaeger, who represents the ECB’s supervisory arm on the bank’s executive board, highlight Germany’s impatience with the direction the ECB has taken under president Mario Draghi.

They also reveal the rift between themselves and supporters of the ECB’s current policy of ultra-low interest rates and massive bond buying, which was defended on Monday separately by the central bank’s chief economist Peter Praet and by Belgian central bank governor Jan Smets.

“I would like to see a less expansive stance,” Jens Weidmann, who sits on the ECB’s Governing Council, said at an event in Dusseldorf.

He and Lautenschlaeger said the ECB should start making plans for an eventual end to its stimulus once the recent, oil-fuelled rise in prices becomes sustainable.

“We should prepare for a change in the policy, and as soon as the data is stable and we have a sustainable path towards our objective of price stability, then we are well prepared to do” that, Lautenschlaeger told CNBC.

An outspoken policy conservative, Lautenschlaeger said that if economic data remain supportive, the ECB could discuss and decide on its next step after June.

But Praet, a key ally of Draghi, argued that the euro zone still needs substantial stimulus as the inflation rise could stall or even reverse if the ECB removed stimulus too early.

“Our conclusion that a very substantial degree of monetary accommodation is still needed for underlying inflation pressures to build up and support headline inflation in the medium term remains valid,” Praet added.

The ECB has pledged to buy bonds until the end of the year, keep interest rates at current or even lower levels until well after that and replace any government bonds in its holdings that expire until further notice.

Belgium’s central bank governor Jan Smets dismissed any suggestion, floated by Austria’s central bank governor and other central bankers, of changing that guidance.

“If other views have been expressed on this issue, they are reflecting a minority position,” he told Reuters in an interview.

“Our decision is clear and I would like to stick to that steady hand approach.”

The ECB’s policy-setting Governing Council next meets on April 27.

Source: Reuters (Reporting by Balazs Koranyi and Andreas Framke; Writing by Francesco Canepa; Editing by Hugh Lawson)

Source from : World Economy News

HEADLINES