Weidmann Reprises Dr. No Stance as ECB Stimulus Decision Nears By Bloomberg

Weidmann Reprises Dr. No Stance as ECB Stimulus Decision Nears By Bloomberg


(Bloomberg) — Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. 

Germany’s top central banker is back in the role he’s best known for — arguing against European Central Bank stimulus.

Despite gathering clouds over the economy, Bundesbank President Jens Weidmann told the Frankfurter Allgemeine Zeitung at the weekend that it would be “wrong for us to act for action’s sake.” He also said speculation over interest-rate cuts or more quantitative easing “doesn’t do justice to the euro area’s latest economic data.”

Those remarks suggest Weidmann is back to a more hardline stance after months of portraying himself as a pragmatist who could succeed Mario Draghi as ECB president. It’s a foretaste for Draghi’s successor Christine Lagarde, and could complicate the Sept. 12 policy meeting when investors are looking for an interest-rate cut and possible resumption of asset purchases to counter a protracted economic slump.

Finnish Governor Olli Rehn has called for a package of measures that beats expectations, and Slovakia’s Peter Kazimir has said a “broad consensus” is needed to ensure the ECB’s credibility.

Nein Zu Allem

Weidmann has been a frequent thorn in Draghi’s side, earning himself the nickname “Dr. No” by publicly opposing bond purchases and putting a less-pessimistic spin on the economic outlook. The ECB chief went so far as to criticize his German colleague by describing his strategy as “nein zu allem” — no to everything.

Yet as political negotiations to nominate Draghi’s successor heated up this year, Weidmann appeared to soften his stance. In June, he even acknowledged that a key crisis-fighting tool known as Outright Monetary Transactions is legal and valid. That was significant — he had previously testified against it in court.

European Union leaders eventually chose Lagarde, then head of the International Monetary Fund, to lead the ECB from Nov. 1.

The Governing Council seems minded to add monetary stimulus next month. Draghi said in June that there would be a need to act if the economy didn’t improve. Since then, the data have shown factory output shrinking, orders dropping and confidence plunging. U.S. President Donald Trump has continued to inflame trade tensions, the U.K. is moving closer to a no-deal Brexit, and the Italian government has collapsed.

Inflation Track

While Weidmann told FAZ that monetary policy needs to be expansionary at the moment, he warned against blindly reacting to calls for more central-bank support. That’s despite expectations that inflation will continue to fall short of the institution’s goal of below, but close to, 2% through to at least 2021.

“What matters is that we’re on track to hit that target,” he said. “If our journey experiences the occasional delay for good reasons, I think that’s acceptable.”

The 51-year-old admitted there’s room to cut interest rates further, but also questioned whether such a move would have much of an impact. He warned against changing the ECB’s self-imposed rules on quantitative easing to allow it to buy more, saying “we need to steer clear of the territory bordering on monetary financing.”

He also suggested that Draghi shouldn’t be pushing through a final large package before stepping down.

“Monetary policy makers must act where they see fit,” Weidmann said. “But in my view, any potential adjustments made to the monetary-policy strategy should be decided under the new president.”

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





Source link