ECB's Wei­d­mann re­mains up­beat on econ­omy

The Pak Banker - - FRONT PAGE -

FRANK­FURT: There are grounds to be pos­i­tive about the eco­nomic out­look for Ger­many and the euro area even as the in­fla­tion out­look wors­ens, Euro­pean Cen­tral Bank Gov­ern­ing Coun­cil mem­ber Jens Wei­d­mann said. "All things con­sid­ered, the eco­nomic out­look for the euro area is thus not as bad as it is some­times made out to be," Wei­d­mann, who heads Ger­many's Bun­des­bank, said in a state­ment at the re­lease of the in­sti­tu­tion's an­nual re­port in Frank­furt on Wed­nes­day. That's even though "down­side risks to euro-area price de­vel­op­ments have re­cently risen," he said.

The Bun­des­bank said in the re­port that profit for 2015 rose to 3.2 bil­lion euros ($3.5 bil­lion) from 3 bil­lion euros the pre­vi­ous year, as net in­come from fi­nan­cial op­er­a­tions rose as net in­ter­est in­come de­clined to a record low. It "ten­ta­tively" low­ered its risk pro­vi­sions to 13.6 bil­lion euros as hold­ings of eu­roarea se­cu­ri­ties pur­chased dur­ing the sov­er­eign debt cri­sis di­min­ished. The profit was trans­ferred in full to the fed­eral govern­ment, the Bun­des­bank said.

The ECB is set to re­view and pos­si­bly ex­pand its mon­e­tary stim­u­lus at its March 10 pol­icy meet­ing. Re­fer­ring to the de­bate in Ger­many over the use of cash and the im­pact of pos­si­bly more-neg­a­tive in­ter­est rates, Wei­d­mann said that cur­tail­ing the use of pa­per cur­rency to dis­cour­age hoard­ing was the "wrong way" to re­spond to mon­e­tary pol­icy chal­lenges.

"There is no dis­put­ing the pos­si­bil­ity of eva­sive ac­tion in the hold­ing of cash if in­ter­est rates fall too far below zero," he said. "In­stead of fo­cus­ing on fi­nan­cial re­pres­sion, we should be dis­cussing how to re­turn to higher in­ter­est rates through in­creased growth." Wei­d­mann said that it would be "dan­ger­ous to sim­ply ig­nore" the long-term risks and side-ef­fects of the ECB's ac­com­moda­tive mon­e­tary pol­icy.

The Bun­des­bank pres­i­dent also said that Ger­many's econ­omy re­mains "in good shape," with stim­u­lus com­ing from low en­ergy prices as well as from higher spend­ing in re­sponse to the refugee cri­sis.

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