The European Central Bank’s recent decision to introduce quantitative easing would make Malta more competitive in manufacturing and tourism, according to Central Bank Governor Josef Bonnici.
Addressing the House Committee on Economic and Financial Affairs, Prof. Bonnici said interest rates were set to be lowered.
This would release more money into the market, increase wealth and stimulate the property market.
Prof Bonnici said the situation was such that normal monetary interventions were failing and the ECB, like other Central Banks such as the US Federal Reserve Bank, had to take steps.
With the exchange rate affected by this decision, the Maltese product, both manufacturing and touristic, would be rendered more competitive. This impact, said Prof Bonnici, was more important for Malta than reducing the interest rates.
Bank lending would increase since banks would be financially discouraged from ‘parking’ money with the Central Bank. He predicted in increase in bond issues to soak up the extra wealth generated by the ECB move.
The system provided for a risk-sharing scenario between the national and the supra-national institutions.
It will release more money, increase wealth and stimulate the property market
In late January the ECB launched a bid to revitalise the eurozone economy and to counter deflation with a €60 billion-a-month bond-buying programme. ECB president Mario Draghi said the central bank would buy more than one trillion euros worth of assets, including government and private bonds by September 2016. The move is aimed at raising inflation in the eurozone to the generally accepted two per cent, although Germany fought it tooth and nail, saying it would demotivate Eurozone countries from reforming their economies.
Replying to questions, Prof Bonnici said Malta was quite self-contained in the financial sector – a positive element in terms of it being safeguarded from market buffeting.
However, he thought Malta might seek to be more open to the international market.
On tourism, he said that if Malta stopped looking for new niches, its economy would stagnate and the benefits of quantitative easing would be lost.
One of the aspects the country needed to look into was the servicing of particular property markets such as luxury and high-finish properties, which seemed to be absent from the market. This could be the right time for the government to look into stimulating this growth area.