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ECB may look to end stimulus as inflation, growth move in right direction

Price growth is now firmly above 1% but will miss the ECB's target of almost 2% for years to come

Reuters  |  Frankfurt 

The headquarters of the European Central Bank (ECB) are pictured in Frankfurt
The headquarters of the European Central Bank (ECB) are pictured in Frankfurt.

The time may be nearing for the European Central to start discussing the end of unprecedented stimulus as growth and are both moving in the right direction, Bundesbank president Jens told German newspaper Welt am Sonntag.

Weidmann, who sits on the ECB's rate-setting Governing Council, also said that the should not make any further changes to the key parameters of its bond purchase scheme, comments that signal opposition to an extension of asset buys since the will soon hit its German bond purchase limits.

Hoping to revive growth and inflation, the is buying 2.3 trillion euros worth of bonds, mostly government debt, a scheme known as quantitative easing and long opposed by Germany, Europe's biggest

The purchases are set to run until December and the will decide this fall whether to extend it in order to boost further or to wind it down, or taper.

"As far as a possible extension of the bonds-buying programme goes, this hasn't yet been discussed in the Council," told the newspaper in an interview.

"But in my view, if the solid economic development and price development continues, as expected, it would be time to take a look at an exit from the very easy monetary policies," he said.

Having flirted with deflation for years, price growth is now firmly above 1 per cent but will miss the ECB's target of almost 2 percent for years to come, its staff projections show.

A key issue is that self-imposed rules allow the to hold up to one-third of each country's debt and given Germany's relatively low debt burden, it is likely to hit this level in the first half of next year.

Any meaningful extension would, therefore, require a change in the programme's rules, a move said he firmly opposed.

A key risk to curbing stimulus may be pressure from governments since any rise in borrowing costs threatens to blow a hole in national budgets after years of rock-bottom borrowing costs.

"This can lead to a political pressure on the Governing Council to continue the loose monetary policies longer than necessary," said.

Weidmann, touted a potential successor to President Mario Draghi when his term ends in late 2019, also said that Germany was not in need of stimulus as employment and capacity utilisation was already high.

First Published: Sun, June 25 2017. 13:10 IST
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