Juergen Stark, executive board member for the European Central Bank has commented that the policy of leaving interest rates low for too long holds a lot of risks.
In a speech in Stuttgart, Stark said “Monetary policy that holds rates very low for too long involves potential dangers.” He softened this by saying, “current monetary policy remains accommodative…the stance continues to be appropriate for now.”
The comments come as policy makers seek to try unconventional ways to boost slowing economies without risking creating asset bubbles, and lowered interest rates is one of the more popular tools at present.
Indeed the ECB has had a low interest rate for more than a year, it has said there is no expectation of inflation breaching its 2 percent ceiling this year, or next year. “We see neither inflation nor deflation risks in the medium term,” Stark commented today in Germany. “Should this assessment change, we will make adjustments.”
The ECB has already begun to divest itself from policies adopted at the height of the financial crisis, such as unlimited liquidity support for banks and 6 to 12 month refinancing operations. However, Stark says that the recent sovereign debt crisis “has delayed the exit from non- standard policy measures but from today’s perspective we’re on a good path. It is essential that the extraordinary measures will only be kept in place for as long as absolutely needed.”
Other temporary measures applied by the ECB during the crisis, such as bond-purchasing are also to be phased out in a “gradual and cautious” way, according to Stark.
