European Central Bank Governing Council member Jens Weidmann said on Friday that easy monetary policy has done what it can to maintain price stability in the euro area and the central bank will not delay any interest rate hike, when needed, in consideration of the state of public finances.
"It is particularly important to make it quite clear now that the Eurosystem will not put off a necessary increase in central bank interest rates out of consideration for public finances," Weidmann, who heads the Bundesbank, said in a speech in Madrid.
"Looking at the euro area, I would therefore say that monetary policy has done its bit towards maintaining price stability."
Monetary policy alone cannot resolve the crisis, the policymaker said, adding that some unconventional measures that the ECB took has pushed it to the maximum of its mandate.
However, the June measures, which includes cutting the refi rate to a record low and the deposit rate to negative as well as unveiling a raft of liquidity measures, cannot be compared to with the crisis measures taken two or three years ago, Weidmann said.
An excessive long period of low inflation could paralyze the Eurozone economy and the central bank is focused on preventing that, he added.
Saying that it would be wrong to play down the risks and side-effects of the June measures, Weidmann drew attention to the danger of exaggerations on the asset and real estate markets, especially the hunt for yield.
"Low interest rates also ease the pressure on governments to vigorously tackle their countries' problems," he said.
"There is a danger that the low interest rates will be used not to consolidate budgets, but to finance additional spending."
He stressed the need for sound public finances as a prerequisite for a stability-oriented monetary policy.
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