European Central Bank (ECB) policy maker Jens Weidmann reiterated his call for a definite end-date for the institution’s bond-buying programme, a refrain that looks likely to gain traction among his colleagues next year.
Saying that domestic price pressures should strengthen as wage growth improves, he said they are “therefore on track toward our definition of price stability.”
While policy makers meeting last week reaffirmed their commitment to buy debt until September “or beyond,” officials including at least half the six-member Executive Board have signalled they’re willing to rein in expectations for another extension. The euro area is currently undergoing the broadest economic expansion in its history, and the ECB this month upgraded its growth forecasts for the bloc.
“A faster conclusion of net asset purchases and a clearly communicated end date would have been reasonable,” Weidmann, who also heads Germany’s Bundesbank, told reporters in Frankfurt late Monday. Despite the upturn, the ECB remains well short of its inflation goal of just under 2% – and Germany is a prime example of the conundrum. There, record-low unemployment and economic growth above its long-term potential has still failed to generate much in the way of wage growth. Weidmann said he’s confident that will soon change.
“We don’t get involved in wage bargaining and respect the independence of bargaining partners. But we expect that the increased capacity utilisation and regionally appearing bottlenecks in some labour markets will lead to somewhat higher wage pressure,” he said. “That’s a projection, not a recommendation.’’
“Bloomberg Economics has scanned a range of indicators and sees no convincing evidence that underlying cost pressure is building.
If the ECB is true to its word, the outlook for prices should extend asset purchases beyond September.”– Jamie Murray, Maxime Sbaihi and David Powell, Bloomberg Economics.
Executive Board member Yves Mersch said on December 6 that in the current environment, the Governing Council “should think carefully how much we pre-commit” on stimulus. His colleague Sabine Lautenschlaeger has repeatedly called for a firm end-date to the programme. Benoit Coeure, who is responsible for market operations, has said he expects the ECB to change the policy language that links bond purchases to progress on inflation.
President Mario Draghi said after the ECB’s December 14 meeting that officials didn’t discuss changing the guidance on asset purchases.
In his wide-ranging remarks, Weidmann also touched on Bitcoin, Basel III, and French President Emmanuel Macron’s proposals for institutional reform of the euro area.
“Price developments seem to be of speculative character, and if you write that every other day a new record is reached, even the last person might feel forced to participate in this wave”
On regulation: “Just because investors can lose money, isn’t a reason to get involved. There are many other ways to engage in unsound transactions and lose money.”
“The hurdle for regulatory action is quite high in my view.’’ “Macron’s proposals reach far beyond stabilising the monetary union.”
“A stabilisation facility to soften asymmetric shocks as proposed by Macron and the Commission, I consider unnecessary and also not expedient.’’
“The agreements of the Basel Committee now need to be implemented completely and without any curtailments. That is particularly true for the US and the trading book.’’
Meanwhile the ECB warned London-based banks it will be paying “special attention” to their relocation plans to avoid the establishment of any empty shell offices inside the European Union after Brexit.
The ECB said the focus would now shift from preparatory work to the implementation of policy as the clock runs down to Britain’s formal exit from the trading bloc at the end of March 2019, according to a list of the banking supervisor’s priorities for next year published on Monday.
The central bank “will continue to assess banks’ plans to relocate activities from the UK to the euro area, including applications for the granting of banking licenses,” the regulator said. “Special attention will be paid to compliance with the agreed policy stances, especially to avoid the establishment of empty shell institutions.”
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