August 24, 2019 / 12:17 PM / 22 days ago

ECB's Weidmann sees no need for economic stimulus - newspaper

FRANKFURT (Reuters) - Germany’s economy has weakened but it is too early for major economic stimulus from the government or the European Central Bank, Bundesbank President and ECB policymaker Jens Weidmann was quoted as saying on Saturday.

FILE PHOTO: German Bundesbank President Jens Weidmann presents the annual 2018 report in Frankfurt, Germany, February 27, 2019. REUTERS/Kai Pfaffenbach

In his first major interview since being passed over for the ECB’s top job, Weidmann signalled his opposition to more monetary easing and, in particular, new purchases of government bonds by the central bank.

“The current outlook is particularly uncertain,” he told German weekly Frankfurter Allgemeine Sonntagszeitung (FAS) in an interview. “But we shouldn’t surrender to pessimism or activism.”

He added “automatic stabilisers”, such as unemployment benefits, should be the first measures in case of further economic weakness and, while the German government had fiscal space, he saw no need for a large-scale programme.

The ECB is studying a new stimulus package which is widely expected to include a rate cut, a restart of its bond-buying programme and a pledge to keep the money taps open for a long time to come.

Weidmann, a policy hawk who in the past criticised the ECB’s easy-money policy under Mario Draghi and was long tipped to replace him, said rate-setters shouldn’t be afraid of disappointing investors expecting more largesse.

“The question is whether new measures are necessary based on our inflation outlook, particularly if side effects grow and effectiveness diminishes,” Weidmann said. “You know that I am particularly cautious about government bond purchases.”

But, in a possible concession, he added interest rates had yet to fall so low as to do more harm than good to the economy and acknowledged banks’ calls for a tiered rate on deposits giving them respite from an ECB penalty charge.

“Banks are affected by the low interest rate environment and tiering would provide relief,” Weidmann said. “Therefore

their demands are understandable.”

He reaffirmed, however, his fears that more purchases of government bonds would jeopardise the ECB’s independence and his opposition to relaxing the constraints on such programmes.

“We have some room for manoeuvre within existing limits,” Weidmann said.

Departing from the diplomatic tone he held during the ECB’s presidential race, Weidmann directly contradicted Draghi’s assertion that the ECB’s target for an inflation rate “below, but close to, 2%” was symmetric.

This would mean any deviation above or below that level was equally undesirable.

“Regarding our definition of price stability, the current formulation of the target is not symmetric in my view,” Weidmann said.

Signalling his opposition to an imminent change of that goal, Weidmann said any review of the ECB’s policy strategy should take place under the new President, Christine Lagarde, who is due to take office on Nov. 1.

Reporting by Christoph Steitz; Writing by Francesco Canepa, editing by Jason Neely and Ros Russell

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