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Klaas Knot has today been very critical of the ECB's new stimulus programme. In a press release On the website of the Dutch Central Bank, he writes that the measures, and in particular the repurchase of government bonds, are disproportionate to the current economic conditions. He also expressed doubts about the effectiveness of the package of measures that the ECB adopted on Thursday. Announced.
According to Klaas Knot, the central bank's package of measures is disproportionate. The inflation target of close to 2% will not be met, but at the same time there is no deflationary risk yet. Given the economic slowdown, Knot says it is inevitable that it will take longer for the ECB to meet its inflation target. According to him, the fact that this will take a little longer is no reason to announce a heavy remedy such as a new purchase program.
The President of the Dutch Central Bank also points to the negative effects of new monetary stimulus. He mentions, among other things, distorted price formation on the financial markets and risk-seeking behaviour in the housing market as a result of low interest rates. He says the following about this:
"This broad package of measures, and in particular the relaunch of the bond purchase programme, is disproportionate to the current economic conditions, and there are good reasons to question its effectiveness. The euro area economy is running at full capacity, and wages are rising.
Financing conditions for citizens, businesses and governments are unprecedentedly generous, and do not constitute an obstacle to lending, consumption and investment. At the same time, there are increasing signs of a lack of low-risk investments, distorted pricing in financial markets and excessive risk-seeking behaviour in housing markets."
It is striking that the Dutch Central Bank expresses its dissatisfaction with the stimulus programme in a press release. The ECB conducts monetary policy for all central banks that are members of the Eurosystem, of which the Dutch Central Bank is also a member. You would therefore expect that there would be internal coordination between the various central banks in the currency union. The fact that a press release has now been issued shows that there is great division between the member states about this new ECB stimulus programme.
Klaas Knot is not the only central banker who is highly critical of the stimulus program. The governor of the Australian central bank, Robert Holzmann, mentioned the new bond-buying program in the interview with Bloomberg A mistake. He added that several board members felt the same way. "Several members of the Board of Directors had the thought that going further into negative territory was not the right way to go. It's not sustainable. It was the right approach when we had a liquidity problem, but it shouldn't be something that takes longer."
The ECB Reduced This week, the deposit rate for banks will go to -0.5%. In addition, the central bank announced a new bond-buying program of €20 billion per month, without mentioning an end date. To alleviate the pressure on the banking sector, the conditions of the new round of liquidity support for banks (TLTRO) are being eased. The ECB also wants to accommodate banks that pay a lot of negative interest on their excess reserves.
