Banking association president Peters: ECB decision on expansive monetary policy inadequate
- ECB, as expected, has adjusted bond-buying programme
- Bond purchases scaled back to 30 billion euros monthly
- Increase in key interest rates not in sight for time being
The European Central Bank (ECB) today announced first adjustments to its bond-buying programme from January 2018, and the Association of German Banks believes it is moving in the right direction. “By scaling back monthly bond purchases, the ECB has taken a clear step towards normalising monetary policy,” said Hans-Walter Peters, the association’s president. “Given that the economy is robust and deflation risks have long since been overcome, this decision is right and long overdue,” Mr Peters added.
At the same time, Mr Peters saw the decision to extend the bond-buying programme until at least September 2018 as less than convincing. This extension was an additional multi-billion-euro monetary policy stimulus in a booming economy. It would expand the ECB’s already heavily inflated balance sheet by a further 270 billion euros. Mr Peters: “All in all, the ECB’s decision today is a mixed one, reflecting a ‘two steps forward, one step back’ approach.
Mr Peters stressed that the longer the ultra-loose monetary policy continued, the higher were the risks. An end to the negative-interest-rate policy was absolutely not yet in sight. He therefore reiterated his recommendation for the ECB to introduce a threshold below which banks would not have to pay any penalty for depositing excess liquidity. “The Swiss central bank has already successfully taken such a step and manged to at least curb to some extent the collateral damage caused by the negative interest rates.”