The monetary stimulus measures already taken by the European Central Bank need more time to have a real impact on the Eurozone economy, but maintaining ultra-loose policy for a long time raises the risk of loosing their efficiency, the bank's policymaker Jens Weidmann said Friday.
"We need to be aware that the longer we stay in ultra-loose monetary policy mode, the less effective this policy will become and the more the attendant risks and side-effects will come into play," Weidmann, who heads Germany's Bundesbank, said in a speech at the 25th European Banking Congress in Frankfurt.
He pointed out the exuberance in some financial markets and the problems faced by life insurers as examples.
"We should not ignore the risk that fiscal policy could get used to the very low interest rates," Weidmann added.
Speaking at the same event, ECB President Mario Draghi said policymakers are set to review the factors that are acting as a drag on euro area inflation in December and will use all available tools to bring price growth to target if there are downside risks to the outlook.
In contrast, Weidmann expressed more confidence about the euro area economic outlook. "I see no reason to talk down the economic outlook and paint a gloomy picture," he said. "Rather - and despite all this uncertainty - our forecasts were not far off the mark."
The accounts of the October 22 rate-setting session, released Thursday, confirmed that ECB policymakers are set to review all available tools in December that will help to achieve the ECB's price stability goal of bringing inflation 'below, but close to 2 percent'.
On December 3, the bank is widely expected to raise the size of its monthly asset purchases to EUR 80 billion from EUR 60 billion and also extend the EUR 1.1 trillion programme beyond its September 2016 deadline. A reduction of the already-negative deposit rate is also possible.
Regarding the influx of migrants into Europe, Weidmann said the quantitative effects of migration are hard to estimate precisely, while it is safe to say that their impact on GDP will be rather stimulative over the projection horizon.
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