NEWS Release - Weidmann: no further loosening of monetary policy
Bundesbank President Jens Weidmann has come out in favour of strengthening the forces of growth in the euro area as a way of moving rates away from the zero lower bound going forward. In remarks delivered at the Bundesbank's third cash symposium in Frankfurt, he noted that the relatively low rate of core inflation in the euro area showed that some euro-area economies were recovering only gradually and that unemployment levels in those countries were still very high.
Weidmann added that the growth outlook for the euro area as a whole was only tepid. The latest Eurosystem staff projection foresaw economic growth of 1.6 % this year and 1.7 % in each of the next two years. Against this background, Weidmann explained, Eurosystem projections were predicting no more than a gradual increase in inflation to 1.3 % next year and 1.6 % in 2018.
Economic developments and price movements are usually closely linked in an economy; the state of the economy is one determinant of enterprises' capacity utilisation and their scope for raising prices. It also indicates how much leeway the wage bargainers have in wage negotiations.
Expansionary monetary policy appropriate
Weidmann stated that, given the currently muted price outlook, the Eurosystem's accommodative monetary policy was appropriate at present, though he added that reasonable people could disagree about the specific design of the non-standard measures. He considered that certain measures were most certainly not without alternatives and emphasised that the current environment did not warrant a further monetary policy loosening. "Our definition of price stability requires the target inflation rate to be achieved over the medium term," he said, adding that that would "give us enough time to see how the adopted monetary policy measures will impact on price movements."
Confidence has roots in cash
The Bundesbank President also used his speech to underline the major importance of cash. He noted that "confidence in a currency has its roots in cash," and that this was perhaps even more true for the euro than for other currencies since euro cash, in his view, "is the most manifest symbol of European integration".
He saw the ECB Governing Council's clear stand in favour of cash as an important signal given the current low-interest-rate setting. Abolishing cash "would be one way of making easier to broadly push through negative deposit rates in the context of an even more accommodative monetary policy," Weidmann warned. The Bundesbank President voiced the opinion that "such proposals would be wrong and an entirely disproportionate response to the monetary policy challenges close to the zero lower bound."
Further Information
European Central Bank
page source http://www.bundesbank.de/
