ECB not set to keep rates low for years: Bundesbank chief

26th August 2013, Comments 0 comments

The European Central Bank is unlikely to keep its interest rates low for years, the head of the German Bundesbak said on Monday, but warned that the eurozone crisis is far from over.

"My assumption is not that interest rates will remain low for years, not least because the economic impulse of ultra-easy monetary policy will fade with time and the risks for financial stability will increase," Jens Weidmann said.

Weidmann, who heads the German central bank, was quoted in an interview with business daily Handelsblatt.

ECB chief Mario Draghi said in July that eurozone interest rates -- already at historical lows -- would remain "at present or lower levels for an extended period of time" and that an exit from the current policy of low interest rates was "very distant."

But Weidmann, who as Bundesbank chief sits on the ECB's decision-making governing council, reiterated that Draghi's remarks -- known as "forward guidance" -- did not constitute a firm promise.

They were "consciously formulated in this way because there are conditions attached", Weidmann said.

"The expectation that interest rates will not be increased for a long period is based ... on our economic forecast. If subsequent data point to a changed outlook for price stability, we will adjust our monetary policy accordingly," he said.

The current period of relative calm in the eurozone's financial markets does not mean that the single currency region's long-running crisis is over, Weidmann warned.

"The crisis is not over and a lot still needs to be done to solve it," he said, insisting that the ECB alone could not solve the crisis because the problems were not of a monetary nature.

"The structural problems in the crisis countries have built up over a long period of time. They can't be resolved in just a few quarters, but will need years. It's factually wrong to say the crisis is over and will only lead to an easing up of reform efforts," Weidmann said.


© 2013 AFP

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