In World Economy News 01/06/2017
The European Central Bank should start preparing to reduce its massive monetary stimulus as the eurozone economy picks up speed, the bank’s two top-ranking German officials said.
Investors are watching for signs of a policy shift from the Frankfurt-based ECB amid mounting evidence that growth and inflation are strengthening. In Germany, Europe’s largest economy, top officials have lined up to attack the ECB’s ultralow interest rates, which are criticized for hurting savers and pensioners.
Speaking in Berlin, Sabine Lautenschläger, who sits on the ECB’s six-member executive board, argued that the robust economic rebound means the ECB “should prepare to slowly reduce the dose of monetary medicine.”
“All ingredients for an appropriate increase in prices are present,” Ms. Lautenschläger said. “Hesitating for too long only creates new problems.”
In the southern German city of Constance, German central bank President Jens Weidmann — a longtime critic of the ECB’s aggressive stimulus programs — struck a similar tone.
Mr. Weidmann argued that inflation was likely to remain high, and suggested ECB officials should start discussing when to change their guidance to investors, which states that the bank will boost its stimulus again if the outlook darkens.
“The current economic outlook, together with the improvement in the balance of risks, suggests that the [ECB’s rate-setting committee] is beginning to discuss whether and when it will be time to adjust our forward guidance,” Mr. Weidmann said.
The comments come as ECB officials enter a quiet period ahead of their next policy meeting in Estonia on June 7-8.
Economists expect the ECB to start changing its message to investors as soon as next week, to reflect a brighter economic reality. They expect inflation to move closer to the ECB’s target over the coming months, despite a drop to 1.4% in May from 1.9% the previous month.
Still, some influential policy makers remain cautious, wary of derailing the bloc’s recovery.
Testifying on Monday at the European Parliament in Brussels, ECB President Mario Draghi acknowledged that the eurozone’s economic recovery was solidifying and broadening. But he warned that underlying inflation — excluding volatile energy and food prices — was still too weak.
“It’s still very, very early to make us think we are going to change the monetary policy stance,” Mr. Draghi said.
His comments suggest the ECB may not be ready to drop its pledges to potentially cut interest rates further below zero or accelerate its bond purchases, currently running at EUR60 billion ($67.1 billion) a month.
Source: Dow Jones
