Peters – ending net asset purchases was overdue

13 December 2018

“The ECB’s decision to end its net asset purchases at the end of the year was overdue,” said Hans-Walter Peters, president of the Association of German Banks, commenting on the decision today by the European Central Bank.

“Unfortunately, this means the ECB is just applying the brakes to its crisis mode in monetary policy, but not stopping it. It is still acting too hesitantly. It should therefore now follow up quickly by promptly presenting a timetable for ending negative interest rates. After all, the ECB’s negative deposit rate harbours considerable risks, particularly in the form of distorted risk pricing and misdirected investment. At the same time, it seriously hinders all efforts to strengthen bank balance sheets. For eurozone banks, the negative interest rates are like a special tax, one that has already cost them around €20 billion.

I don’t share concern that an end to the negative interest rate policy could push up long-term interest rates sharply in the eurozone. If the ECB makes clear that the end of negative interest rates is part of its strategy for exiting crisis mode in monetary policy, then the capital market rates should react only minimally, particularly when the still moderate long-term inflation outlook is borne in mind. So abandoning negative interest rates would by no means trigger a continuous rate hike cycle.”

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