In World Economy News 03/07/2017
The European Central Bank is working on moving away from its ultra-easy monetary policy, Jens Weidmann, head of Germany’s Bundesbank and a member of the ECB’s rate-setting body, said on Saturday.
Investors are watching for any sign that the ECB may reduce its stimulus, which includes massive bond purchases and ultra-low rates, after a hint in that direction by President Mario Draghi boosted the euro and government bond yields this week.
“It will hopefully come and we’re working on that, we’re also discussing it,” Weidmann, a long-standing critic of the ECB’s bond purchases, told an audience at the Bundesbank’s open days.
Inflation in the euro zone has been low for years and it is not expected to reach the ECB’s target of just under 2 percent until at least 2019 despite the central bank’s efforts.
But price growth is now comfortably above 1 percent, leading some rate setters, particularly in the wealthier northern countries of the currency union, to call for a reduction in the ECB’s monetary largesse.
“What we are discussing and even arguing about is how expansive monetary policy should be given our target,” Weidmann said during a question-and-answer session with the public.
ECB President Draghi said this week Frankfurt could make tweaks to its policy to accompany the recent economic recovery in the euro zone.
This has strengthened market expectations that the ECB would wind down its 2.3 trillion euros (2.02 trillion pounds)bond purchases next year and start raising rates thereafter.
The ECB’s policy of low rates has been unpopular with sections of the German public and political class, who fear it erodes returns on savings while bankrolling indebted governments in the south of the bloc.
Weidmann said the issue for rate setters was when to show resolve and normalise the ECB’s policy in the face of political pressures to keep it easy longer than necessary.
Source: Reuters (By Frank Siebelt, Writing by Francesco Canepa; Editing by Andrew Heavens and Stephen Powell)
