Weidmann Sees No Need for More ECB Easing in Response to Brexit

  • Bundesbank president doubts additional stimulus would work
  • Fallout from U.K.’s vote may damp euro-area, German growth

Bundesbank President Jens Weidmann said there’s no need for the European Central Bank to ease monetary policy in response to Britain’s vote to leave the European Union, even as it will “slightly” curb economic growth in the euro area and Germany.

“Monetary policy is already very expansionary and it would be questionable whether an even more expansionary stance would have a stimulative effect,” Weidmann said in a speech in Munich on Friday. “An ever-more expansionary monetary policy can’t lift the economic burden of political uncertainty.”

Weidmann, an outspoken critic of policy activism, is staking out his position amid speculation that the ECB may need to act to address the fallout from the U.K.’s June 23 referendum. Policy makers are considering loosening the rules for quantitative easing after some of the safest assets became ineligible for purchase, with Peter Praet, the central bank’s chief economist, warning that Brexit may reverse some of the recent improvements in euro-area investment and consumption.

Central banks from around the world have pledged to backstop financial markets with liquidity in pounds and foreign currency before and after the British vote. So far, the ECB didn’t have to act as investors took the news “prudently” with no sign of panic, Weidmann said. He urged political leaders to start talks swiftly to reduce the period of heightened uncertainty to a minimum.

Economic Fallout

Economic consequences will be biggest in the U.K., although growth could also be damped in the 19-nation region and its biggest economy, which counts Britain as third-largest export market, Weidmann said.

“Much depends on speedy and and reasonable negotiations about the future relationship between the EU and the U.K. - in the interest of both sides,” Weidmann said. “No side can have an interest in building up trade barriers.”

A fast solution may not be forthcoming. The two front-runners to replace British Prime Minister David Cameron, who resigned in the wake of the referendum, set the U.K. on a collision course with EU leaders -- Michael Gove and Theresa May both said they were in no hurry to trigger the mechanism to start Britain’s withdrawal.

That may force central bankers’ hands after all. The Bank of England could cut interest rates within months, Governor Mark Carney signaled on Thursday. In his second televised address since the country voted ‘Leave,’ he said officials won’t hesitate to act when it comes to safeguarding the economy or the resilience of the financial system.

The Brexit decision “is very unfortunate and, in my eyes, a mistake,” Weidmann said. “But it has to be respected and we have to deal with it.”

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