Call for ECB tight­en­ing

The Myanmar Times - - International Business -

THE Euro­pean Cen­tral Bank (ECB) must not al­low low in­ter­est rates and mon­e­tary stim­u­lus to last in­def­i­nitely, the head of Ger­many’s Bun­des­bank (cen­tral bank) said.

“Un­der no cir­cum­stances can in­ter­est rates re­main so low for longer than is ab­so­lutely nec­es­sary with re­gard to price sta­bil­ity,” Bun­des­bank pres­i­dent Jens Wei­d­mann told a group of Euro­pean news­pa­pers in­clud­ing the Sued­deutsche Zeitung.

“The risks of ul­tra-loose mon­e­tary pol­icy be­come larger the longer the phase of low in­ter­est rates lasts,” he in­sisted.

The ECB’s head­line main refinancing rate has stood at zero since early 2016, while its de­posit rate is in neg­a­tive ter­ri­tory – mean­ing banks pay to park their money in its cof­fers.

Com­bined with the cen­tral bank’s of­fers of cheap loans to banks and “quan­ti­ta­tive eas­ing” pol­icy of buy­ing state and cor­po­rate debt, low rates are sup­posed to drive down the cost of bor­row­ing for busi­nesses and house­holds, which should stim­u­late growth in the econ­omy.

Stronger growth pushes up prices, nudg­ing in­fla­tion to­ward the ECB’s tar­get of slightly be­low 2 per­cent.

But while the bank’s gov­ern­ing coun­cil has pushed rates lower and in­creased the scale of its bond pur­chases to 80 bil­lion eu­ros (US$89.3 bil­lion) per month, growth in the 19-na­tion sin­gle cur­rency bloc has re­mained slug­gish.

The ECB slightly in­creased its growth fore­cast for 2016 to 1.7pc at an early Septem­ber meet­ing but trimmed its pre­dic­tions for 2017 and 2018. –

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