With the threat of euro zone deflation largely gone, the justification for the European Central Bank’s massive asset purchase scheme is no longer there and policymakers should ease up on stimulus, Bundesbank President Jens Weidmann said on Thursday.
Easy monetary policy is still needed because of low inflation and the ECB will continue to provide accommodation for a long time but the bank should “ease up on the accelerator”, Weidmann, who sits on the rate setting Governing Council said in Frankfurt.
Weidmann, a long-time critic of the ECB’s quantitative easing (QE) programme, argued that accommodation is mainly a function of the ECB’s huge balance sheet after more than 2 trillion euros (£1.80 trillion) worth of bond buys, rather than of monthly purchases.
With the asset buys due to expire at the end of the year, the ECB is expected to decide in October whether to continue the purchases or start winding them down.
Markets expect a reduction in the buys given robust growth but expect the ECB to remain in the market for much of 2018 given still weak inflation.
Weidmann added that lax monetary policy has negative side effects and can jeopardize financial stability, which should be taken into consideration even if macroprudential tools are the first line of defence for stability issues.
Source: Reuters (Reporting by Balazs Koranyi; Editing by Francesco Canepa)