The European Central Bank must give up its expansionary stance as soon as euro area inflation moves closer to its 2 percent target as the favorable effects of the stimulus measures are fading fast, but as of now low interest rates are set to remain for some time more, Bundesbank Executive Board member Andreas Dombret said Wednesday.
A sharp rise in the oil price, which pushed German inflation to 1.7 percent in December, could drive euro area inflation above 2 percent in the coming months, Dombret said in a speech in Leipzig.
Eurozone inflation has risen recently, owing to the higher energy prices, yet is well below the target, he noted.
"There is, therefore, no question that monetary policy must be normalized as soon as it become clear that the inflation rate will reach the stability range of just below 2 percent on a sustainable basis," Dombret said.
"The desired effects of expansive monetary policy are diminishing with increasing pace, while unwanted side effects are rising...in particular the risk that the liquidity on the markets leads to the development of financial market bubbles."
"However, given the current inflation data, we will probably have to live with the low interest rate until further notice," he added.
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June 19, 2026 16:46 ET Major central banks continued to dominate the economic news flow this week too, led by the Federal Reserve, as they announced their latest policy decisions. The Federal Reserve policy session was in focus as it was the first to be led by the new chief Kevin Warsh. In Europe, central banks of the U.K. and Switzerland announced their rate decisions. In Asia, the Bank of Japan drew attention for its policy moves, while data out of China threw some light on the state of the economy.