The European Central Bank could buy loans and other assets from banks to lift the eurozone economy, the Bundesbank has said, marking a radical softening of its stance on the contested policy.
The Bundesbank represents the eurozone’s biggest eco-nomy, Germany, and its president’s words carry weight in the debate over what the ECB should do as its traditional stimulus methods, such as lowering the cost of borrowing, run out of steam.
Jens Weidmann, who is a member of the European Central Bank Governing Council, called in an interview with MNI published yesterday for a debate about the effectiveness of other policy tools as the scope of further interest rate cuts was limited.
“The unconventional measures under consideration are largely uncharted territory. This means that we need a discussion about their effect-iveness and also about their costs and side-effects,” Weidmann said in the interview.
We must ensure the prohibition of monetary financing is respected
“This does not mean that a QE programme is generally out of the question,” he said. “But we must ensure the prohibition of monetary financing is respected.”
Quantitative easing (QE) is when a central bank buys loans or other assets from banks. It would represent a radical departure for the ECB, which has so far, not least under pressure from Germany, refused to do it.
Weidmann had been one of the chief opponents of such a move and his change of tack signals a possible future shift in the ECB’s stance, just at the time that the US Federal Reserve is paring back its own programme of asset buying.
The ECB has kept interest rates at a record low of 0.25 per cent since November and said it would keep rates at this level or lower well into the recovery, and even if inflation begins to pick up, to absorb a large degree of unused capacity.
The central bank has started to pay closer attention to the euro exchange rate and its impact on the outlook for inflation, and Weidmann said a negative deposit rate could be a way to address the impact from a stronger currency.