Weidmann Says Any New ECB Measures Mustn't Be Counterproductiveby and
German member of Governing Council comments in TV interview
Euro-area bank profitability suffering from ultra-low rates
The European Central Bank must be wary of introducing fresh stimulus that could backfire and weaken the transmission of policy to the economy, Governing Council member Jens Weidmann said.
“What matters for us is that we don’t produce counterproductive effects,” Weidmann, who heads Germany’s Bundesbank, said in a Bloomberg Television interview in Frankfurt on Wednesday. “If through the effect on, for instance, the stability of banks our measures produce the opposite of what we want then it wouldn’t be smart to embrace them in the first place.”
In the face of a deteriorating inflation outlook, ECB policy makers will review their current package of negative interest rates and a 1.5 trillion-euro ($1.7 trillion) bond-buying program when they meet March 9-10. With investors pricing in at least a 10-basis point cut in the deposit rate, currently at minus 0.3 percent, concern is mounting that a squeeze on bank profits will hinder lending.
ECB Vice President Vitor Constancio said last week that any easing should “mitigate the effect on banks.” He declined to elaborate on what that might mean. Central banks in Switzerland and Denmark have structured their negative deposit rates to provide exemptions for banks up to certain amounts.
Euro-area inflation was 0.4 percent in January, far below the goal of just under 2 percent, and the ECB says it could turn negative in coming months. An initial estimate for this month will be published on Feb. 29.
Weidmann, who has been reluctant to bolster stimulus so far, said it is “clear that the current price developments warrant a thorough monetary-policy debate.” At the same time, he stressed that officials should first consider the need for further action before discussing the instruments to use.
“What matters for that is the analysis of the medium-term inflation outlook and whether that’s compatible with our definition of price stability,” he said. “We have to design our measures in a way to make sure they are powerful and they are effective.”