October 27, 2017 / 11:38 AM / 22 days ago

ECB should have signaled end to asset buys: Weidmann

PARIS (Reuters) - The European Central Bank should have signaled a clear intent to end asset-buying, Bundesbank President Jens Weidmann said on Friday, a day after the bank extended the purchases and left the door open to another extension.

Deutsche Bundesbank (German Federal Bank) President Jens Weidmann attends the ‘G20 Africa Partnership – Investing in a Common Future’ Summit in Berlin, Germany June 13, 2017. REUTERS/Axel Schmidt - RC1235547980

Growth is improving and much of the stimulus is provided through the ECB’s bloated balance sheet, so the relevance of ongoing asset purchases is diminishing, Weidmann, a long-time critic of the ECB’s quantitative easing program said in Paris.

Although the ECB decided on Thursday to halve its asset buys, it extended the scheme by nine month, retaining an option to both extend and increase the purchases, against the opposition of policy hawks in the bloc’s core countries.

“In my view a clear end of net purchases would have been warranted, especially because I, as you probably know, have taken a particularly critical view on government bond purchases in the euro zone,” he said.

Weidmann, touted as a potential candidate to succeed ECB President Mario Draghi in two years, argued that easy monetary policy is still needed given weak inflation, so the debate is about the extent of the stimulus and the instruments the ECB should use.

“The main impact of our purchase program is not so much in the monthly buys, but in the total volume of bonds already on our books,” Weidmann added.

Indeed, the ECB has purchased over 2 trillion euros worth of bonds and Draghi acknowledged on Thursday that this is an increasingly vital component of policy support.

Weidmann added that an end of asset buys is also warranted as the gap between the economy’s output and potential is rapidly closing. “According to our forecasts, the output gap will close next year, and in the short term, the economy could grow even faster than previously expected,” he said.

Reporting by Leigh Thomas; Writing by Balazs Koranyi Editing by Jeremy Gaunt

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