Plus   Neg

ECB's Weidmann Warns Against Signaling Next Policy Move

European Central Bank Governing Council member Jens Weidmann said it was not sensible for the European Central Bank to signal its next policy move immediately after the recent interest rate cut.

Citing an interview to be published on Thursday in the Die Zeit weekly, reports quoted Weidmann as saying, "There is no easy and quick way out of this crisis."

"Printing money definitely won't solve it," the policymaker, who heads the Bundesbank, added.

On November 7, the ECB sprung a surprise by cutting the key interest rate by a quarter-point to a record low 0.25 percent, given the combination of low inflation, record unemployment and a stronger currency. Media reports suggest that Germany was against the decision to cut interest rates this month.

"The Council has only just eased monetary policy further. Hence, I do not think it is sensible to immediately signal the next round," Weidmann said.

In an interview to the Wall Street Journal last week, ECB Executive Board member Peter Praet raised the prospect of the central bank making asset purchases, otherwise known as quantitative easing.

Comments from ECB Vice-President Vitor Constancio yesterday confirmed that policymakers did explore the option of asset purchases this month. He said such a move was only "a possibility and nothing else", adding that there was no technical debate on the matter.

While other leading central banks including the Federal Reserve, Bank of England and Bank of Japan have used quantitative easing, the ECB has resisted the move on fears of stoking inflation. ECB policymakers still maintain that the bank has not reached the 'lower bound' on interest rates, but the prospect of low inflation for a prolonged period has apparently altered their view on QE.

ECB policymakers, including President Mario Draghi, have implied that they can also consider lowering the deposit rate that is currently at zero, to negative territory. Executive Board member Jorg Asmussen has said that a negative deposit rate cannot be ruled out, but the bank must be very careful in taking such a decision.

"Technically, we are certainly not at the end of our possibilities," Weidmann said, while questioning what was sensible. "The debate about additional measures distracts from the actual causes of the crisis."

Further, Weidmann said the problems in the euro area were due to the lack of competitiveness, high government debt and struggling banking systems in some countries.

For comments and feedback contact: editorial@rttnews.com

Economic News

What parts of the world are seeing the best (and worst) economic performances lately? Click here to check out our Econ Scorecard and find out! See up-to-the-moment rankings for the best and worst performers in GDP, unemployment rate, inflation and much more.

Follow RTT