Dr. Lorenz Weimann
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This Thursday there is no good reason to loosen the monetary reins further or signal the willingness to do so. On the contrary, the ECB should quash expectations of further easing measures and leave no doubt that it intends to sit tight. A number of factors favor this approach:
For the reasons set out above, stepping up expansionary monetary policy would do little to push inflation up rapidly towards the ECB’s target of "below, but close to, 2 percent". Nor does the currently low level of inflation require rash action. Given currently prevailing oil and commodity prices, inflation will already be back at 1% at the end of the year, on a rising trend.
In the absence of completely unexpected events and economic setbacks, the ECB would be well advised to rein in its large asset purchases from March 2017 at the latest. The ECB should announce this now. Adequate liquidity has been sloshing around in the banking system for long enough and is by no means an obstacle to business investment. Penalty interest rates on the very high deposits of the banks at the ECB weaken all eurozone banks and should be scrapped as soon as possible. Of course there is a risk that the financial markets will react to such an announcement with disappointment initially and trigger a sell-off. But that cannot be an argument to stick with measures the impact of which is questionable and which are badly distorting prices and investment incentives on the financial markets. Monetary policy needs substantially more support from economic policy, on its own it cannot generate higher growth.